Final Valuation Catalog & Mail order houses industry Matt Lynch

1. Final Valuation Catalog & Mail order houses industry Matt Lynch

2. Presentation Outline Brief Overview of Company Segment Growth Acquisitions Forecast Assumptions and Results Buy/Sell/Hold Recommendation Quick Summary of Carl Icahn Battle

4. eBay • 3 Business Segments • Marketplace • eBay.com • StubHub.com and other small websites • Payments • PayPal • Bill Me Later • Marketing, Classifieds, Advertising Services • eBay Enterprises

5. How does eBay grow? • Total Net Revenue Growth of 14% • Marketplaces • 12% revenue growth • Increase in GMV: total value of all successfully closed items between users in Marketplace trading platforms • Payments • 19% revenue growth • Increase in TPV: dollar vol. of payments successfully completed on networks • Enterprises • 3% revenue growth – increase in Merchandise Sales (technologies) • Newest segment – highly seasonality

6. Acquisition of GSI Commerce • Closed deal on June 17, 2011 for $2.4b in cash & debt • Seen as a way to challenge Amazon • Problem: Divested large chunks of GSI • Financials near impossible to adequately combine • More realistic to use growth rates from 2012 to 2013 only • Aligned with many analysts’ predictions • Rebranded to eBay Enterprises

7. How to handle other acquisitions? • Buying small tech companies is part of eBay’s business model • “We expect to continue to purchase assets & businesses” • Many are private = lack of F/S info • Majority financed by cash • Acquired Braintree in late 2013 for $713m • Price allocation still not complete • Summary: Most acquisitions do not effect F/S comparability/valuation

8. Forecast Assumptions • Sales Growth • Latest conference call projected 12%-16% over the next 4 years • Valueline projects 14.5% over the next 5 years • YahooFinance projects 13.5% %growth over the next 5 years

9. Forecast Assumption • Conclusion: • 2014-2018: 14% • 2019: 12% • 2020: 10% • 2021: 7.5% • 2022: 5.5% • 2023: 5.5% • Thereafter: 5% • Compared to S&P 500, analysts project much higher growth rates for the industry and eBay

10. Other Assumptions • Expenses • Kept most expenses as a % of Revenue • % of Revenue has been pretty consistent over the years • Balance Sheet Items • Used % of revenue from previous two years to estimate future

11. Steps to Forecast • Calculate future growth rates • Forecast each line item for Balance Sheet and Income Statement • Calculate Enterprise Profit Margin and Enterprise Asset Turnover Forecasts • Use Common Size Analysis (% of Sales) • Calculate Enterprise Value using 3 models • Adjust for Date • Make Recommendation

12. Forecasting I/S

13. Calculate EPM Forecasted EPM initially decreased but recovered as steady state approached

14. Calculate EATO

15. 3 Valuation Models Sales Growth after 2023 = 5% WACC = 10.1% from Bloomberg

16. DCF

17. REI

18. AGR

19. Adjusting Date of Value Estimate Estimated Value using 12/31/13 Balance Sheet Date Adjust to Today (4/23/14): V(4/23/14) = V(12/31/13)*(1+r(ent))(113/365) V(4/23/14) = 58,363*(1+.101)(113/365) V(4/23/14) = $60,128 Mid-Year Adjustment: $60,128 * (1+.101)(0.5) =$63,091

20. Comparison to the Market Value Enterprise Value Price per Share Market Cap: $71,180M Less NFAs: $(9,552) Enterprise Value: $62,257 My Valuation: $63,091 Undervalued by $834m My Valuation: $63,091 Plus NFAs: $9,552 Equity Value: $72,643 Shares Outstanding: 1,294m Calculated Price per Share: $56.14 Opening Price Today: $55.47

21. Recommendation Hold “Patient investor may find more attractive entry point in coming years” - Valueline

22. Quick Quick Summary of Carl Icahn • In February, Icahn started writing letters demanding PayPal and eBay split • Openly attacked management’s competence • Said potential of PayPal is being restricted • Which means a loss of $ for shareholders • Failed attempts to gain Board members

23. Quick Quick Summary of Carl Icahn eBay held strong on its position Icahn backed down on position 2 weeks ago, reached truce on proxy fight Did it effect eBay’s value? Is Icahn right? Is the fight really over? How would a split affect eBay?

24. Thank you! Questions?