eBay Inc (EBAY)’s Q4 2014 Earnings Call Transcript

For eBay Enterprise, we expect FX neutral revenue growth of 5% to 8% with segment margins of 5% to 10%, greater than 2014. As John mentioned, this is a good business but has increasingly divergent opportunities with eBay, and therefore, we are pursuing a sale or IPO. As we move to become independent companies and fully allocate cost, we expect the business unit segment margins to be impacted by 3 to 4 points from corporate overhead and approximately 1 point from the dis-synergies associated with the separation. From a tax rate perspective, we expect the standalone tax rate for PayPal to be lower than eBay Inc.’s tax rate and the eBay Marketplaces and eBay Enterprise to be higher than the eBay Inc. tax rate.

Next, I’d like to switch gears and give you an update on where we are related to separation. As I mentioned earlier, there are 3 primary work streams we are focused on to set up these 2 businesses to succeed.
First, the separation itself. Our guiding principle has been to move as swiftly as possible to set up each business to be fully self-sufficient and put in transitional service agreements where time, complexity and/or costs become an impediment. At this stage, we expect to incur approximately $200 million of on-going cost, which is in line with our expectations. The dis-synergy costs are associated with separating data centers, infrastructure and IT-related task as we migrate from of shared services-type environment to a path towards self-sufficiency. Additionally, there’ll be facilities costs associated with separating shared facilities and G&A-related costs associated with creating 2 public companies.

The second major work stream has been capital structure. Our guiding principle here has been to ensure each business is well capitalized with financial flexibility to pursue their strategic priorities, whether it is the resources to fund growth or the flexibility to return cash to shareholders. We have a great balance sheet, and at this stage, we feel increasingly confident that we can achieve our objectives. Our intentions are to sufficiently capitalize eBay with net cash of approximately $2 billion with significant debt capacity and leave PayPal with approximately $5 billion of net cash. We believe we can accomplish this in a tax-efficient manner.
The third critical work stream relates to the operating agreement between the 2 companies.

Our guiding principle here has been to provide each business with a strategic flexibility to maximize its independent potential while maintaining the synergies that have been captured and created over the years. At this stage, we’re making good progress. But at the same time, we have lots to do. Overall, from a separation standpoint, we are on track to file our initial Form 10 by the end of February, and we are increasingly confident in our ability to effect the separation in the second half of this year.
I know that was a lot of cover in a relatively short time, but now we’d be happy to answer any questions you have. Operator?

Operator
Our first question comes from Eric Sheridan of UBS.

Eric Sheridan – UBS
I guess 2. One, on the PayPal take rates, I wanted to know if we can get a little bit of color on the pressure you’re seeing on take rates as TPV growth stays quite strong and maybe even gets stronger as you get bigger in mobile going forward and Brain tree becomes a bigger portion of the pie going forward. So maybe a little bit of commentary on the cadence there. And then, John, on the Market Places business, you made a comment about shutting down or stopping initiatives that might not yield positive results longer term for Market Places. I want to know if we can get a little more color there.