eBay Inc.
Q3 2007 Earnings Call Transcript

Published: 18 Oct 2007

[Operator:]

Welcome to eBay's third quarter 2007 earnings resultsconference call. Today's call is being recorded. With us today from the companyis the President and Chief Executive Officer Meg Whitman; Chief FinancialOfficer Bob Swan; and the Vice President of Investor Relations, Mr. Mark Rowen. At this time I would like to turn the call over to Mr. MarkRowen. Please go ahead, sir.

[Mark Rowen:]

Thank you, operator and good afternoon. Thank you forjoining us. Welcome to eBay's earnings release conference call for the thirdquarter of 2007. Joining me today on the call are Meg Whitman, our Presidentand Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We're providing a slide presentation to accompany Bob'scommentary during the call. This conference call is also being broadcast on theInternet, and both the presentation and call are available through the investorrelations section of eBay's website. Before we begin, I'd like to remind you that during thecourse of this conference call, we may discuss some non-GAAP measures intalking about our company's performance. You can find the reconciliation ofthose measures to the nearest comparable GAAP measures in the slidepresentation accompanying the conference call. In addition, management may make forward-looking statementsregarding matters that involve risks and uncertainty, including those relatingto the company's ability to grow its business, user base and user activity. Ouractual results may differ materially from those discussed in this call for avariety of reasons, including our increasing need to grow revenues fromexisting users in established markets, an increasingly competitive environmentfor our businesses, the complexity of managing a growing company with a broadrange of businesses; regulatory, tax, as well as IP and other litigation risks,including risks specific to PayPal in the financial industry and risks specificto Skype's technology and to the VoIP industry; our need to upgrade ourtechnology and customer service infrastructure to accommodate growth atreasonable cost, while adding new features and maintaining site stability;foreign exchange rate fluctuations; and the impact and integration of recentand future acquisitions. You can find more information about factors that couldaffect our results in our annual report on Form 10-K and our quarterly reportson Form 10-Q, available at investor.eBay.com. You should not unduly rely on anyforward-looking statements and we assume no obligation to update them. With that, let me turn the call over to Meg.

[Meg Whitman:]

Thank you, Mark.Welcome, everyone to today's conference call. Q3 was a strong one for thecompany. We delivered record net revenues of $1.89 billion, representing a 30%year-over-year growth rate. Non-GAAP earnings per share was up 59% and freecash flow grew 32%, even as we continued to invest in some of our mostimportant businesses. eBay International, PayPal Merchant Services, StubHub, Classifieds,and our advertising businesses all performed above our expectations during thequarter. We feel good about our strategy headed into Q4, and the investments weare making in our various businesses. Let me give you some highlights for eachof our business areas

[Bob Swan:]

Thanks, Meg. Today I'll discuss our Q3 financialperformance, along with our outlook for the fourth quarter of 2007. During mydiscussion I will reference our earnings slide presentation, which accompaniesthe webcast. Overall, we're very pleased with the financial results we postedin Q3. Our results reflect strong top line growth, even stronger non-GAAPearnings growth, and excellent free cash flow. We continued our sharerepurchase program in the quarter, buying back $500 million of eBay shares inQ3, and $2.8 billion since we launched our initial repurchase program in Julyof last year. Although we're disappointed with the impairment charge wetook in the quarter, we still believe that Skype has great potential. With strong financial performance in each of the first threequarters of the year, we approach the remainder of the year focused on theexecution of our business plan and confident in our ability to deliver strongfull year revenue and earnings growth. In total, our combined businesses generated record netrevenues of $1.9 billion, a 30% increase over last year. Organic revenuegrowth, excluding acquisitions and FX was 23%. The growth was driven by anacceleration of Marketplaces international GMV-based revenues, anotherextremely strong performance from PayPal Merchant Services, almost triple-digitgrowth from Skype, and continued traction in some of our non-GMV businesses,such as advertising and classifieds. Non-GAAP EPS was $0.41 for the quarter, a 59% increase fromlast year and $0.08 above the top end of our guidance range. This was primarilydriven by operational out performance, which we mostly reinvested back into thebusiness, a lower tax rate, including $0.04 from a one-time tax asset, andtranslation benefits resulting from a weaker U.S. dollar. In the third quarter, we generated $510 million of free cashflow, an increase of 32% above last year's level. This outstanding growth wasdriven primarily by earnings expansion, coupled with a year-over-year reductionin CapEx as a percentage of revenue. Now let's take a closer look at our segment results for thequarter. Overall, our Marketplaces business had a very good quarter, withstrong top-line growth and profitability. The Marketplaces segment achieved netrevenues of $1.3 billion, an increase of 26% over the year-ago period. GlobalGMV was $14.4 billion in the quarter, a 14% increase over last year.Approximately 51% of revenue and 53% of GMV came from our internationalmarkets. Now let's walk through some of our key operating metrics. eBayMarketplaces added nearly 7 million confirmed registered users in the quarter,bringing the total user base to 248 million. New listings totaled 556 millionin the quarter, a decline of 5% versus Q3 last year, with core listings down 3%and store inventory listings down 14%. New listings totaled 254 million in the U.S.and 301 million internationally. U.S. GMV grew by 10% over last year to $6.7 billion, asimilar increase to last quarter. Core listings increased modestly, while muchof the growth was fueled by increases in conversion rates and ASPs due tohigher quality inventory listings on our site. International GMV grew by 17% year over year to $7.7billion. Excluding benefits from foreign exchange, international GMV grew by10%; a 2 point acceleration sequentially on an FX-neutral basis, primarilydriven by strong a conversion rate and ASP improvements in our German business.France and Italy,which are at earlier stages of development, continue to be strong contributorsto our overall European performance. In Asia, we're pleased with theprogress we're making in Korea,as year over year revenue growth accelerated nicely in Q3 following lastquarter's acceleration of GMV growth. We are increasingly confident that theseresults demonstrate the initiatives we've introduced in Koreaover the past year or so are resonating with consumers in that market. In Australia, listings and GMV growth rates acceleratednicely and in China, our joint venture with Tom Online is off to a good start,as our new site went live in Q3 and listing levels are already higher than theywere prior to the joint venture. Let me give you some additional color on the wide gapbetween the 5% decline in new listings and our 26% growth in Marketplacesrevenue. The influences causing the diversions are twofold. First, GMV grewsignificantly faster than new listings. Second, revenue continues to grow muchfaster than GMV. The gap between listings and GMV growth is driven by severalfactors. First, we no longer include listings from our joint ventures in Chinaand Taiwan; this,plus our recent acquisition of StubHub accounted for approximately 5 points ofthe difference. Second, improved ASPs and conversion rates accounted forapproximately 10 points of the difference. Third, FX drove the remaining 4points of divergence to total GMV growth of 14%. The gap between our GMV and revenue growth is also driven byseveral factors. First, continued strength in our non-GMV businesses such asShopping.com, Rent.com, classifieds and advertising, contributed 4 points ofgrowth on a year-over-year basis. Classifieds continues to exhibit hyper-growthcharacteristics, and advertising continues to gain significant momentum on oursites. Overall, our advertising and other revenue within Marketplaces increased67% over last year, accounting for 4% of Marketplaces revenue in the quarter. Second, StubHub, which receives a higher take rate than oureBay Marketplaces, as well as our joint ventures in Chinaand Taiwanwhere we no longer recognize local GMV or revenue due to our minority interest,drove approximately 5 points of the differential. Finally, the revenue shift invehicles to non-GMV based formats such as classifieds and dealer subscriptions,as well as pricing actions we've taken in the last 12 months drove theremaining 3 points of growth. So in summary, our Marketplaces business performed well thisquarter. We continue to invest in significant enhancements to the buyerexperience, and we'll continue to conduct pricing tests on our various sites aswe go forward to better understand how we can optimize growth rates in ourmarketplace. Now let's turn to our payments business. PayPal postedanother strong quarter with total revenue coming in at $470 million, a 35%increase versus the same period last year. This quarter's performance onceagain underscores the progress we're making in our efforts to accelerate theubiquity of PayPal on the web by increasing penetration on eBay and expandingour global footprint beyond eBay. Total payment volume in the quarter was $12.2 billion,representing 34% year-over-year growth, the second quarter in a row of growthacceleration. TPV grew by 27% in the U.S.and 49% internationally. TPV growth continued to benefit from our ongoinggeographic footprint expansion, with international TPV accounting for 34% ofthe total, compared to 31% in 3Q'06, primarily driven by the tremendousstrength in Merchant Services. In terms of key operating metrics, PayPal added nearly 11million new accounts in the quarter, ending Q3 with 164 million total accounts.On our eBay platform, PayPal's global TPV grew by 18% year over year. TPVgrowth was fueled by increases in GMV, coupled with an increase in globalpenetration rates to 61% of addressable GMV, up from 58% last year. The on eBay platform, PayPal's Global Merchant Servicesbusiness recorded another phenomenal quarter, generating $5.4 billion of TPV,representing a 61% year-over-year growth and marking a second straight quarterof acceleration. We continue to attract top online retailers to our platform,and we're extremely excited about the traction we have gained. We also launchedPayPal PayLater in the quarter, a new transactional credit offering that webelieve could accelerate future volume. PayPal's Q3 transaction expense was 1.15%, 8 basis pointshigher than the year-ago period, and 3 basis points higher than last quarter,primarily due to growth in new PayPal customers, who initially tend to favorcredit card over bank and store balance transfers. PayPal recorded a transaction loss of 25 basis points thisquarter, a 10 basis point improvement from the year-ago quarter and 4 basispoints lower sequentially. However, 9 basis points of the loss rate improvementwas due to a change in estimates related to chargeback loss recoveries. In summary, PayPal had another great quarter and itcontinues to be one of the key drivers of our companywide growth. We continueto make significant investments in order to extend our leadership position inthe online payment space, and we believe the strong growth we've experienced inrecent quarters confirms that these investments are beginning to pay off. Now let's turn to our communications business. Skype enjoyedhealthy growth in the quarter, posting total revenue of $98 million, anincrease of 96% over the year-ago period, while delivering a third consecutivequarter of segment profitability, excluding the impairment charge, which I willdiscuss in a moment. Skype's total registered users grew to nearly 246 million,representing an increase of 81% over last year. Geographically, all three majorregions

[Operator:]

Yourfirst question comes from Shawn Milne - Oppenheimer.

[Shawn Milne:]

Thank you, and thanks for taking my question. Meg, youtalked a little bit about the early success in Best Match. Can you talked aboutthe rollout plan? It looks like what we've seen so far has been more commodityor UPC-based categories, and if you can just give a little more color aroundwhat you're seeing in conversion rates, that would be very helpful. Thank you.

[Meg Whitman:]

Best Match, you're right. We have started in categories thathave good catalogs associated with them. Whether that's books, movies andmusic, consumer electronics, things that have basically ISDN numbers associatedwith them. Those tend to be more commodity-oriented items than unique itemslike collectibles or used products. What we've seen is that we can get people to the itemthey're looking for faster, make it easier for them to look at a smaller numberof listings as opposed to page after page of listings, and we are seeing somepositive early results in conversion rates. So we will continue to roll thatout across categories as we head into 2008. I don't believe there's going to be much more rollout in2007 because we pretty much put a moratorium on the site for the holidayseason. But we're encouraged, and you'll see the pace of change accelerate morerapidly in the first quarter of 2008.

[Operator:]

Your next question comes from Scott Devitt - StifelNicolaus.

[Scott Devitt:]

Thank you. I'm trying to better understand the long-termmargin structure at PayPal, given that Merchant Services is now about 44% ofthe total payment volume. I'd be interested if you could provide some moredetails on Merchant Services specifically? What I'm interested in is possiblythe domestic/international split of the payment volume, possibly the operatingmargin structure of Merchant Services versus PayPal on eBay. Then if you could just expand on your disclosures in thelast 10-Q related to direct contribution margins for PayPal. It seems likethat's gone from 26% last year to 18% from the last disclosed numbers. Again,just trying to understand the margin structure of that business as MerchantServices grows over time. Thank you.

[Bob Swan:]

What we've seen over the last several quarters in theacceleration of PayPal growth is primarily driven by the traction we continueto get from Merchant Services, both here domestically and specifically,internationally. So Merchant Services is becoming a much bigger piece of theoverall PayPal business. We said a year or so ago the long-term operating margins forour PayPal business we believed would be in the 20% to 25% range. What that entailsis continued accelerated growth in Merchant Services and improving penetrationon eBay, over time. What we've experienced in the short term with rapid growthis our customers have a tendency to use credit cards in their initial earlyadoption of PayPal. The less we know about consumers, all else equal, thehigher the fraud losses. So in high growth periods -- which Merchant Servicesare in -- our transaction expense and our fraud losses have a tendency to behigher. That's what we've been experiencing over the course of the first couplequarters this year in the transaction margins on PayPal. We believe over time, as customers mature in their uses ofPayPal, what they have done is adopted more ACH methods of payment thatenhances margins. As we learn more about them, our fraud models are moreeffective in detecting potential fraud. So all that means is we feel great about PayPal's growth. Wefeel even better about the traction we're getting in Merchant Services. Long term,operating margins in PayPal we believe to be in the 20% to 25% range.

[Operator:]

Your next question comes from Jeffrey Lindsay - SanfordBernstein.

[Jeffrey Lindsay:]

Can we get a littlebit more detail on the increase in product development costs? Specifically,what was the nature of the rise from 7% to 7.6%? Secondly, possibly a related question. Do you have plans topossibly go to an open platform to improve R&D cost performance?

[Bob Swan:]

I'll take the first part. In terms of product development,we've been talking about continuing to accelerate our product efforts, and Megwalked you through a lot in the introduction, particularly on the Marketplacesor eBay side during the course of the quarter. This has been a constant themefor us to put a little more into product, and a little bit less into marketingto improve the user experience. So the results of a lot of that investment wentvia the site in this quarter. In addition to that, PayPal, we've continued to invest inbuilding out its global product footprint and make its underlyinginfrastructure a little more agile to support its increasing growth. Thecombination of those two things are what's driving up the R&D expenses as apercent of total.

[Meg Whitman:]

Interestingly, ourdevelopment capacity has actually expanded faster, because not all of thedevelopment capacity has been added here in the United States. So while 7% went to 7.6%, ourcapacity actually increased much more dramatically. I think we're really pleased by the way we'rehandling product development expansion across the company. With regard to open platforms, we have had, I would say,moderately open platforms on eBay for many years. We have had a robust suite ofAPIs. But there is more work to do around these open platforms. The thing thatobviously we always have to be focused on is on the PayPal side, we handlepeople's money. So our tolerance for risk, our tolerance for fraud, is lowerthan it is in almost any of our other businesses. The same is somewhat true for eBay in that we are a targetfor account takeovers and other things. But that said, we have watched what isgoing on in the marketplace with open platforms. We are committed to, over thenext couple of years, opening up our platforms more so that we can get otherpeople to do some of the R&D and some of the new, fun niche features thatwould be welcomed by our users. So, thanks for that.

[Operator:]

Your next question comes from Anthony Noto - Goldman Sachs.

[Anthony Noto:]

Thank you very much. Bob, on slide 8 of the slides you provided theconversion rate and ASP contribution of 10%. Meg, you talked about rolling out some ofthese new initiatives that are adding conversion rate. Do you think you canmaintain that year-over-year growth rate of 10%, or do you think it's in thelow single-digits? Where do you think it goes? The combination of really justimplementing some of the technology to drive conversion rates higher as opposedto just pricing mechanisms? Meg, you're lowering fees through November 5th by about, Ithink you said, 33%. Obviously your revenue guidance is higher. So I waswondering how you're really funding that? Do you think you get incrementalvolume against the lower revenue per listing on the front end? Thanks.

[Bob Swan:]

I'll start, Anthony.I think a couple things; first, what we saw happen during the course of thethird quarter is continued improvements in conversion rate and ASPs virtuallyacross all of our markets. What we anticipate happening as we go forward intoQ4 is the year-over-year comps related to listings will become cleaner. Weexpect to see some listings growth as we enter Q4. We're expecting conversionrates to hold, and they're holding off some relatively tough comps from fourthquarter last year. We do however expect ASPs to decline. There's a couple ofdynamics that we think will drive that decline. One is the absence of, you mayremember last year's fourth quarter had some high ASP consumer electronicsproducts that really drove an increase in ASPs. We don't anticipate that kindof increase in ASPs this year. As a matter of fact, we anticipate them comingdown. Secondly, we're driving more velocity in the lower tranches,and in the lower tranches with lower average selling prices. The combination ofthose two have conversion rates holding but ASPs likely declining in the fourthquarter.

[Meg Whitman:]

Anthony, let me take your question about lowering fees.We've done a lot of pricing tests over the last 12 months, but this is thesingle biggest pricing test we have ever run in terms of decreasing insertionfees for a sustained period of time. The truth is, we don't exactly know howthis will work. But we expect listings to increase; we except successful itemsto increase; we anticipate perhaps ASPs will go down, as Bob said. What theresult is on revenue, we don't know. We've taken our very best guess and we'vefactored that into our fourth quarter results. So suffice it to say that if we hadn't done this pricingtest, revenues might have been higher. But we really do not know. Part of thistest is actually to get some real-world data on a pretty significant decreasein our insertion fees. And we wanted to get a fast start to the holidays for oursellers. As I said, it is through November 5th. So this is the same pricereduction. I actually think this isgoing to turn out well for us, but we have factored that into our guidance. I would say we have been appropriatelyconservative in factoring that into our guidance.

[Operator:]

Your next question comes from David Joseph - Morgan Stanley.

[David Joseph:]

Thank you. Mary and I have just one question. It seems thateBay is pretty well-positioned for the holiday season right now. You've seenthe quality of goods improve pretty dramatically on the site. You're improvingthe user experience. We certainly like the Snapshot, and we're looking forwardto the new checkout, though it doesn't sound like you're going to be gettingthat out before the holiday season. But it seems that now really the focus is on the biddingactivity. You're getting maybe perhaps some inactive buyers back to theplatform and have a new and improved experience. To that end, I guess, all eyeswould be a little bit on the marketing campaigns that you launched inmid-September. You said that the initial results were somewhat positive. I am wonderingif you could provide a little bit more color on that? But also, give us alittle bit more of an idea of what other marketing you might be doing toattract or drive activation or activity?

[Meg Whitman:]

Sure. I think you're right. I think we have good plans forthe holiday season, not only in the U.S.but also in Germanyand the UK, aswell as most of the eBay countries around the world. Inactive buyers are certainlya part of that campaign. With regard to these integrated marketing campaigns, and Iwould say they're better integrated than they have ever been before , thefeedback that we've gotten from our community of users is very good. Ourcommunity of users likes these campaigns and that's important, because whenthey like the campaigns, they tend to be more involved with the site. Most ofthe marketing just started in mid-September, so it's a little early to tell.But if you look at the early results, I think, we feel pretty good about it. The marketing campaigns also have some new features; catalogsevery month, and also more couponing. Now that most of the listings on eBay.comoffer PayPal, we can actually effectively utilize couponing which is atraditional holiday season marketing tool that we've not really been able touse in the past. So I think we are well-positioned. I think we've got a greatcampaign in place across our countries, and we'll see how it works out.

[Operator:]

Your next question comes from Ben Schachter - UBS.

[Ben Schachter:]

Looking at thepercentage of revenue, or percentage of GMV that's coming in at fixed price,I'm wondering if there's an optimal number that you're looking at there? Withinthe context of how you look at the Store versus Core, and how there were somestructural disruptions. Is there any chance that you think the percentage ofGMV that's fixed price, can that get to a point where there will be structuralproblems with the business?

[Meg Whitman:]

Our objective is tofollow the user. This is a marketplace, and we want to do what the users wantto do; what the sellers want to sell, and what the buyers want to buy. But oneof the keys to fixed price is our finding product, or Best Match. Because whathappened to us last year is we added a whole host of fixed price listings, andthe search or find capability was not up to sorting through this vast number ofincreased and not particularly well-priced inventory. That created some of theuser experience issues that we had last year. So it's actually not about the format; it's about thefinding metaphor that has to keep up with fixed price. So I think we're betterpositioned than we've have been in that regard, and I think we're also verypleased with the Stores vibrancy. We still have well over a quarter of a millionstores in the U.S.and that continues to grow. Our ProStores product hit an all-time record lastweek in terms of the number of stores. So the net-net-net is I think, you're going to see a higherpercentage of our GMV in fixed-price. I think it's the fastest-growing part ofthe market. We can now cope with it from the finding metaphor point of view.

[Operator:]

Your next question comes from Mark Mahaney - Citigroup.

[Mark Mahaney:]

Thank you very much. One question on Skype and one on Germany. OnSkype, you made comments about monetizing Skype too early. Were there specificthings that you're referring to there? What were the initiatives that weremonetized too quickly? Last quarter I think you had said that German GMV growthwas up mid single-digits. Is there a specific update to that, or was it roughlyup that same level again this quarter? Thank you.

[Meg Whitman:]

With regard to Skype,when the earn-out incentives were in place, because two of the three metrics werefinancial metrics -- revenue and gross profit -- there was a lot of incentiveto monetize this user base really fast. Whether it was the call setup fee,whether it was the rates that we charged SkypeOut and SkypeIn, I think wedialed that up too fast given that the value proposition for Skype in the earlydays was, you can talk for free. So I understand why it was done. I think it was done tooearly with not as much focus on delighting the user, whether that wassimplicity of UI, whether that was customer support. You're going to see usback off some of that monetization a little bit to continue to delight theusers.

[Bob Swan:]

In terms of Germanyprogress during the quarter, we saw GMV acceleration from Q2 to Q3 on anFX-neutral basis. As Meg indicated, we saw some decent growth in listings,conversion rates, and ASPs continued to improve during the course of thequarter. The combination of those three things resulted in acceleration of GMV. I would say that we also had relatively speaking, some easiercomps. Because you'll remember last year we talked quite a bit about the WorldCup. The comps on a year-over-year basis were a little bit easier this year. Butmodest listings growth, improved conversions and ASPs; that is acceleratingGMV.

[Meg Whitman:]

One last point onSkype. I think the other thing is we over-monetized a bit, but I also think wedropped a bit too much profitability to the bottom line, because the teamwasn't focused on how we could actually utilize this, if you will, excessprofitability to drive user engagements. I think that was the nature of an early-stageteam that is going to end up needing to spend a bit more money on marketing anduser engagement. So it may be that we over-monetized a bit. I think weprobably, better said, dropped a little bit too much money to the bottom linefor this stage growth of the company.

[Operator:]

Your next question comes from Heath Terry - Credit Suisse.

[Heath Terry:]

I just wanted to dig a little bit deeper on the decision tolower insertion fees. I am curious as to what's really motivating that. You'veseen such strong improvement in ASPs and conversion rates following the feeincreases. I'm wondering if you're beginning to feel like there's not enoughinventory on the site, or there's just not a broad enough representation ofproduct going into the holiday season that we've gotten to the point that weneed to encourage more listings?

[Meg Whitman:]

I think there are a couple of factors at work. One is wewant to make sure that we have great breadth of inventory --and high qualityinventory -- on the site for the holiday season so we wanted our sellers to getoff to a fast start. That's why we made the decision to lower prices for such asustained period of time. The other thing is we want to see what happens when we takea price decrease of this magnitude. What is the listings elasticity? What isthe conversion rate? What is the nature of what we do here? I think the learning over the last 12 months, letme speak for myself personally, is we have a number of different levers topull. We've got product levers, we've got marketing levers, we've got customersupport and trust and safety levers and we have a pricing lever that we havenot ever really decreased price. It is possible that by decreasing price, weactually increase the revenues and vibrancy of this market in such a way thatthis price decrease is more than self-liquidating. Now, I don't know that that's going to happen. But we werevery much in favor of saying let's see what happens when we take a prettysignificant sustained decrease in insertion fee in our largest market. Let'ssee what happens there. It may well be better for sellers, and interestingly there, better forbuyers. We may end up with a win-win. But we will see, and we will report backin the first quarter.

[Operator:]

Your final question comes from Victor Anthony - BearStearns.

[Victor Anthony:]

First on category pricing. I know you've been testing thatin the UK, oryou plan to do so, I think next week. Wonder if you could talk about what'sinfluencing that change? When do you plan to move that over to the U.S.? Second, one more question on the rationale for the insertionfees. I wondered how much of that decision was influenced by the competitivelandscape, and in particular Amazon? Thanks.

[Meg Whitman:]

On category pricing,actually a number of countries around the world have done category-basedpricing. Germanyhad pricing scenarios on tech and consumer electronics. They have a toys-basedcategory pricing coming in for the holiday season. The UK,you mentioned, has had differential pricing on a number of categories. I thinkapparel was one. I think that differentiated category pricing may be in ourfuture. As you think about it, our sellers have very different margins onwhether it's a watch, or whether it's a piece of apparel, or whether it's avery competitive consumer electronics; high price or low price. So again, we'relearning. One of the great things is we have laboratories around the world thatwe can test this strategy. So I suspect that category-based pricing may well bein our future. With regard to competitive dynamics, actually the cost ofselling, the total all-in cost of selling on eBay is extremely competitiveversus anyone, including Amazon. The mix of fees around the world can bedifferent, where there are virtually no insertion fees and much higher valuefees. So one of the things we are testing is what does a reduction in theinsertion fee do? How does that play out? I wouldn't say it was necessarily competitively driven; itwas, let's take a look at the entire market dynamic. It's 12 years since welaunched this marketplace, and let's really take a big, bold experiment thatwe've never done before and see what happens to the overall vibrancy of themarket. I think that's it. Thank you very much, and we look forwardto talking to you next quarter.