Financial Analysis E-bay

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EBay, the market leader in online auctions, has experienced tremendous growth since 1996. The following numbers from Exhibit 1 demonstrate eBay's recent growth: - The number of users rose from 41,000 in 1996 to 10,006,000 (525% annual growth rate) - Merchandise sales increased from $7 Million in 1996 to $2.8 Billion (637% annual growth rate) - The number of auctions jumped from 289,000 in 1996 to 129,560,000 (665% annual growth rate) The chart below focuses on the important ratios and figures used for completing a financial analysis for eBay.

1996 1997 1998 1999 Net Revenue Growth N/A 29.1% 108.2% 160.9% Operating Profit (as % of revenue) 20.0% 25.9% 14.8% -5.2% Operating Expense (as % of revenue) 58.7% 55.1% 66.5% 75.0% Sales and Marketing Expense (as % of revenue 41.0% 37.8% 41.8% 43.0% Marketing Expense/Customer (regular users) $320 $45.80 $16.50 $9.59 Marketing Expense/Listing $45.46 $3.55 $1.07 $0.74 Return on Assets (Net Income as % of Assets) N/A 125.6%

4.9% 1.1% Return on Equity (Net Profit as % of Equity) N/A 695.7% 7.2% 1.3% Current Ratio N/A 4.42 3.96 5.17 Debt to Asset Ratio N/A 0.10 0.33 0.03 Debt to Equity Ratio N/A 0.55 0.006 0.006 Cash and Cash Equivalents (000's) N/A 3,723 37,285 219,679 Short-term investments (000's) N/A N/A 40,401 181,086 The financial statements of eBay in Exhibits 3 and 4 reveal that revenue increased from $32,051,000 in 1996 to $224,724,000 in 1999, while net income for the same period increased from $3,338,000 to $10,828,000. EBay's revenue growth in 1999, from the previous year, had an astonishing increase of 160.9%. However, for the first time in the history of eBay, a negative operating profit occurred in 1999. After careful examination of the ratios and figures, the negative operating profit can be primarily attributed to quickly rising operating expenses...