# EBAY INC (EBAY) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from EBAY INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1065088/000106508822000006/ebay-20211231.htm
Accession: 0001065088-22-000006
Filing date: 2022-02-24
Report date: 2021-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/EBAY/
All MD&A years: /company/EBAY/mda/
Next year: /company/EBAY/mda/fy2022/ (FY 2022)

OVERVIEW

Business

eBay Inc., is a global commerce leader, which includes our Marketplace platforms. Founded in 1995 in San Jose, California, eBay is one of the world’s largest and most vibrant marketplaces for discovering great value and unique selection. Collectively, we connect millions of buyers and sellers around the world, empowering people and creating opportunity. Our technologies and services are designed to provide buyers choice and a breadth of relevant inventory and to enable sellers worldwide to organize and offer their inventory for sale, virtually anytime and anywhere. In 2021, eBay enabled $87 billion of Gross Merchandise Volume.

In 2020, the World Health Organization declared the outbreak of a coronavirus (“COVID-19”) and its variants as a pandemic which continues to be widespread with uncertainty around its duration. As a result of COVID-19 mobility restrictions globally, there were changes in consumer behavior that have resulted in more online shopping beginning in 2020 and extending into 2021. Our Marketplace platforms experienced improved traffic, acquisition of small business sellers and buyer acquisition due to the impacts of measures taken globally to contain the spread of COVID-19. These changes in behavior began to normalize as mobility trended toward pre-pandemic levels through the remainder of 2021, and we have experienced lower traffic in most markets which we expect to continue into 2022. The impacts seen to date continue to create volatility in our results and a wider range of potential outcomes as consumer behaviors and mobility restrictions continue to evolve. See “Results of Operations” below for impacts of COVID-19 on our results for the year ended December 31, 2021 compared to the year ended December 31, 2020. For additional information, see “– Liquidity and Capital Resource Requirements” below and “Item 1A: Risk Factors” under the caption “The global COVID-19 pandemic could harm our business and results of operations” in Part II of this report.

On November 14, 2021, we completed the previously announced sale of 80.01% of the outstanding equity interests of eBay Korea LLC, a limited liability company incorporated under the laws of Korea and a wholly owned subsidiary of eBay KTA (“eBay Korea”) to E-mart Inc. and one of its wholly owned subsidiaries (together, “Emart”), pursuant to the terms and conditions of the securities purchase agreement, in exchange for approximately $3.0 billion of gross cash proceeds as of the transaction close date, subject to certain adjustments specified for indebtedness, cash, working capital, transaction expenses and certain taxes. The sale resulted in a pre-tax gain of $3.2 billion inclusive of a $81 million currency translation adjustment and a $44 million gain net of tax on the net investment hedge settled in the fourth quarter of 2021, and related income tax expense of $369 million. Upon

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completion of the sale, we retained 19.99% of the outstanding equity interests of the new entity, Gmarket Global LLC (“Gmarket”) formerly known as Apollo Korea, which is accounted for under the fair value option.

On June 24, 2021, we completed the previously announced transfer of our Classifieds business to Adevinta ASA (“Adevinta”) for $2.5 billion in cash proceeds, subject to certain adjustments, and approximately 540 million shares in Adevinta which represent an equity interest of 44%, comprised of approximately 33% of voting shares and 11% of non-voting shares. Together, the total consideration received under the definitive agreement was valued at approximately $13.3 billion, based on the closing trading price of Adevinta’s outstanding shares on the Oslo Stock Exchange on June 24, 2021. The equity interest received is accounted for under the fair value option. On November 18, 2021, we completed the previously announced sale of approximately 135 million of our voting shares in Adevinta to Astinlux Finco S.à r.l. (“Permira”), inclusive of the option exercised by Permira to purchase additional voting shares, for approximately $2.3 billion in cash proceeds. At the close of the sale inclusive of the option exercised, our ownership in Adevinta was reduced to 33%.

On February 13, 2020, we closed the previously announced sale of our StubHub business to an affiliate of viagogo. Beginning in the first quarter of 2020, StubHub’s financial results for periods prior to the sale have been reflected in our consolidated statement of income as discontinued operations. Additionally, the related assets and liabilities associated with the discontinued operations in the prior periods are classified as discontinued operations in our consolidated balance sheet.

We have classified the related assets and liabilities associated with our eBay Korea and Classifieds businesses as discontinued operations in our consolidated balance sheet. The results of our eBay Korea, Classifieds and StubHub businesses have been presented as discontinued operations in our consolidated statement of income for all periods presented through the respective transaction close dates as the transactions represented a strategic shift in our business that had a major effect on our operations and financial results.

See “Note 3 — Discontinued Operations” in our consolidated financial statements included elsewhere in this report for additional information.

Presentation

In addition to the corresponding measures under generally accepted accounting principles (“GAAP”), management uses non-GAAP measures in reviewing our financial results. The foreign exchange neutral (“FX-Neutral”), or constant currency, net revenue amounts discussed below are non-GAAP financial measures and are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Accordingly, the FX-Neutral information appearing in the following discussion of our results of operations should be read in conjunction with the information provided below in “Non-GAAP Measures of Financial Performance,” which includes reconciliations of FX-Neutral financial measures to the most directly comparable GAAP measures. We calculate the year-over-year impact of foreign currency movements using prior period foreign currency rates applied to current year transactional currency amounts.

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Fiscal Year Highlights

During 2021, we completed the migration of eBay’s managed payments in all markets, delivering buyers and sellers a simplified end-to-end payments experience. Net revenues increased 17% to $10.4 billion in 2021 compared to 2020 primarily due to the migration of managed payments on a global basis and the associated higher take rate. Transaction take rate was higher in 2021 compared to 2020 as a result of revenue initiatives such as global payments and Promoted Listings, which along with final value fees are calculated as a percentage of an item’s sale price and category mix. FX-Neutral net revenue (as defined above) increased 15% in 2021 compared to 2020. Operating margin decreased to 28.1% in 2021 compared to 29.6% in 2020.

On November 14, 2021, we completed the sale of 80.01% of the outstanding equity interests of eBay Korea to Emart for approximately $3.0 billion of gross cash proceeds. We retained 19.99% of the outstanding equity interests of the new entity, Gmarket, which is accounted for under the fair value option.

On June 24, 2021, the transfer of our Classifieds business was completed for $13.3 billion of consideration which comprised of $2.5 billion in proceeds and shares of Adevinta valued at $10.8 billion. On November 18, 2021, we completed the sale of approximately 135 million of our voting shares in Adevinta to Permira for approximately $2.3 billion in proceeds. At the close of the sale our ownership in Adevinta was reduced to 33%.

We generated cash flow from continuing operating activities of $3.1 billion in 2021 compared to $3.0 billion in 2020, ending the year with cash, cash equivalents and non-equity investments from continuing operations of $7.3 billion.

In May 2021, we issued senior notes of $2.5 billion aggregate principal amount, which consisted of $750 million of 1.400% fixed rate notes due 2026, $750 million of 2.600% fixed rate notes due to 2031 and $1.0 billion of 3.650% fixed rate notes due 2051.

In 2021, we repaid approximately $1.2 billion of debt primarily comprised of $750 million for the 6.000% senior fixed rate notes due 2056 and $395 million of the 2.600% senior fixed rate notes due 2022. We also paid $7.1 billion for repurchases of common stock, of which $2.5 billion related to repurchases of common stock under an accelerated share repurchase program, and paid $466 million in cash dividends.

In February 2022, we declared a quarterly cash dividend of $0.22 per share of common stock to be paid on March 18, 2022 to stockholders of record as of March 10, 2022.

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RESULTS OF OPERATIONS

We have one reportable segment to reflect the way management and our chief operating decision maker (“CODM”) review and assess performance of the business. Our reportable segment is Marketplace, which includes our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. The accounting policies of our segment are the same as those described in “Note 1 — The Company and Summary of Significant Accounting Policies” in our consolidated financial statements included elsewhere in this report.

Net Revenues

Seasonality

We expect transaction activity patterns on our platforms to trend with general consumer buying patterns and expect that these trends will continue. As we introduce new products and platforms, such as managed payments, we expect net revenues to fluctuate. In addition, macroeconomic conditions, such as the ongoing COVID-19 pandemic, may also contribute to fluctuations in revenues and margins. The following table presents our total net revenues and the sequential quarterly movements of these net revenues for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Quarter Ended"],["","March 31","","June 30","","September 30","","December 31"],["2019"],["Net revenues","$","1,867","","","$","1,859","","","$","1,799","","","$","1,904"],["% change from prior quarter","**","","\u2014","%","","(3)","%","","6","%"],["2020"],["Net revenues","$","1,821","","","$","2,337","","","$","2,258","","","$","2,478"],["% change from prior quarter","(4)","%","","28","%","","(3)","%","","10","%"],["2021"],["Net revenues","$","2,638","","","$","2,668","","","$","2,501","","","$","2,613"],["% change from prior quarter","6","%","","1","%","","(6)","%","","4","%"]]
[[/GREPCENT_TABLE]]

** Growth for the period excluded as 2018 revenue numbers have not been recast and provided.

Net Revenues by Geography

Revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, platform that displays advertising, other service provider or customer, as the case may be, is located. The following table presents net revenues by geography for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","% Change","","2020","","% Change","","2019"],["U.S.","$","5,048","","","22","%","","4,151","","","26","%","","$","3,303"],["% of net revenues","48","%","","","","47","%","","","","44","%"],["International","5,372","","","13","%","","4,743","","","15","%","","4,126"],["% of net revenues","52","%","","","","53","%","","","","56","%"],["Total net revenues","$","10,420","","","17","%","","$","8,894","","","20","%","","$","7,429"]]
[[/GREPCENT_TABLE]]

Our commerce platforms operate globally, resulting in certain revenues that are denominated in foreign currencies, primarily the British pound and euro. In addition, as shown in the table above, we generate approximately half of our net revenues internationally. Because of these factors, we are subject to the risks related to doing business in foreign countries as discussed under “Item 1A: Risk Factors” in Part I of this report.

Net revenues included $65 million of hedging losses during 2021 and $15 million and $81 million of hedging gains during 2020 and 2019, respectively. The hedging activity in net revenues specifically relates to hedges of net transaction revenues. Foreign currency movements relative to the U.S. dollar had a favorable impact of $188 million

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and $26 million on net revenues in 2021 and 2020, respectively, and an unfavorable impact of $85 million on net revenues in 2019. The effect of foreign currency exchange rate movements in 2021 compared to 2020 was primarily attributable to the weakening of the U.S. dollar against the British pound and euro.

Net Revenues by Type

We generate two types of net revenues:

Net transaction revenues primarily include final value fees, feature fees, including fees to promote listings and listing fees from sellers on our platforms. Our net transaction revenues also include store subscription and other fees often from large enterprise sellers. Our net transaction revenues are reduced by incentives, including discounts, coupons and rewards, provided to our customers.

Marketing services and other ("MS&O") revenues consist of revenues principally from the sale of revenue sharing arrangements and advertisements.

The following table presents net revenues by type for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","% Change","","2020","","% Change","","2019"],["Net transaction revenues","$","9,772","","","19","%","","$","8,243","","","25","%","","$","6,581"],["Marketing services and other revenues","648","","","\u2014","%","","651","","","(23)","%","","848"],["Total net revenues","$","10,420","","","17","%","","$","8,894","","","20","%","","$","7,429"]]
[[/GREPCENT_TABLE]]

Net Transaction Revenues

Key Operating Metrics

Gross Merchandise Volume (“GMV”) and take rate are significant factors that we believe affect our net transaction revenues.

GMV consists of the total value of all paid transactions between users on our platforms during the applicable period inclusive of shipping fees and taxes. Despite GMV’s divergence from revenue, we still believe that GMV provides a useful measure of the overall volume of paid transactions that flow through our platforms in a given period.

Take rate is defined as net transaction revenues divided by GMV and represents net transaction revenue as a percentage of overall volume on our platforms. We believe that take rate provides a useful measure of our ability to monetize volume through marketplace services on our platforms in a given period. We use take rate to identify key revenue drivers on our marketplace.

Net Transaction Revenues

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change","","Year Ended December 31,","","% Change"],["","2021","","2020","","As Reported","","FX-Neutral","","2020","","2019","","As Reported","","FX-Neutral"],["Net transaction revenues (1)","$","9,772","","","$","8,243","","","19","%","","17","%","","$","8,243","","","$","6,581","","","25","%","","26","%"],["Supplemental data:"],["GMV (2)","$","87,365","","","$","87,608","","","\u2014","%","","(3)","%","","$","87,608","","","$","72,134","","","21","%","","21","%"],["Take rate","11.19","%","","9.41","%","","1.78","%","","","","9.41","%","","9.12","%","","0.29","%"]]
[[/GREPCENT_TABLE]]

(1)Marketplace net transaction revenues were net of $65 million, $15 million and $81 million hedging activity during the years ended December 31, 2021, 2020 and 2019 respectively.

(2)GMV has been retrospectively recast to reflect the new definition of GMV announced in December 2021.

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During 2021, we completed the migration of eBay’s managed payments in all markets, delivering buyers and sellers a simplified end-to-end payments experience. Net transaction revenues increased $1.5 billion in 2021 compared to 2020 primarily due to the migration of managed payments on a global basis and the associated higher take rate as well as the growth of Promoted Listings. GMV was relatively flat in 2021 compared to 2020 due to improved traffic and buyer acquisition during the first quarter of 2021 offset by a decline in traffic experienced for the remainder of 2021. Traffic has fluctuated throughout 2021 and 2020 in response to the pervasive macroeconomic impacts of COVID-19, including mobility restrictions which influence consumer engagement in online shopping. GMV in both 2021 and 2020 was elevated compared to 2019 as improved business dynamics influenced growth across all major product categories. While GMV growth rates were relatively flat across many categories in 2021 compared to 2020, market trends influenced stronger contributions from the collectibles category in 2021 compared to 2020, particularly in the U.S.

Transaction take rate was higher in 2021 compared to 2020 as a result of revenue initiatives such as global payments which resulted in the majority of global on-platform volume processed through managed payments and Promoted Listings, which along with final value fees are calculated as a percentage of an item’s sale price and category mix.

The increase in net transaction revenues in 2021 compared to 2020 was due to take rate considerations discussed above, despite relatively flat GMV. We expect that the divergence between net transaction revenues and GMV to continue into 2022. Despite GMV’s divergence from net transaction revenues, we still believe the metric provides a useful measure of overall volume of paid transactions that flow through the platform in a given period.

Marketing Services and Other Revenues

The following table presents MS&O revenues for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","% Change","","Year Ended December 31,","","% Change"],["","2021","","2020","","As Reported","","FX-Neutral","","2020","","2019","","As Reported","","FX-Neutral"],["MS&O revenues","$","648","","","$","651","","","\u2014","%","","(2)","%","","$","651","","","$","848","","","(23)","%","","(23)","%"],["% of net revenues","6","%","","7","%","","","","","","7","%","","11","%"]]
[[/GREPCENT_TABLE]]

MS&O revenues were relatively flat in 2021 compared to 2020 primarily due to a decrease in advertising revenues offset by an increase in revenues from revenue sharing arrangements for shipping agreements.

Cost of Net Revenues

Cost of net revenues represents costs associated with customer support, site operations and payment processing. Significant components of these costs primarily consist of employee compensation including stock-based compensation, contractor costs, facilities costs, depreciation of equipment and amortization expense, bank transaction fees, credit card interchange and assessment fees, authentication costs and digital services tax. The following table presents cost of net revenues for the periods indicated (in millions, except percentages): 

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","% Change","","2020","","% Change","","2019"],["Cost of net revenues","$","2,650","","","47","%","","$","1,797","","","13","%","","$","1,585"],["% of net revenues","25","%","","","","20","%","","","","21","%"]]
[[/GREPCENT_TABLE]]

Cost of net revenues, net of immaterial hedging activities, was unfavorably impacted by $30 million attributable to foreign currency movements relative to the U.S. dollar in 2021 compared to 2020. The increase in cost of net revenues in 2021 compared to 2020 was primarily due to an increase in payment processing costs as we transitioned customers to our payments platform throughout 2021 and an unfavorable impact from foreign currency movements relative to the U.S. dollar.

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Operating Expenses

The following table presents operating expenses for the periods indicated (in millions, except percentages): 

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","% Change","","2020","","% Change","","2019"],["Sales and marketing","$","2,170","","","4","%","","$","2,091","","","12","%","","$","1,866"],["% of net revenues","21","%","","","","24","%","","","","25","%"],["Product development","1,325","","","29","%","","1,028","","","11","%","","930"],["% of net revenues","13","%","","","","12","%","","","","13","%"],["General and administrative","921","","","(6)","%","","985","","","\u2014","%","","988"],["% of net revenues","9","%","","","","11","%","","","","13","%"],["Provision for transaction losses","422","","","28","%","","330","","","26","%","","262"],["% of net revenues","4","%","","","","4","%","","","","4","%"],["Amortization of acquired intangible assets","9","","","(67)","%","","27","","","(6)","%","","28"],["Total operating expenses","$","4,847","","","9","%","","$","4,461","","","10","%","","$","4,074"]]
[[/GREPCENT_TABLE]]

Foreign currency movements relative to the U.S. dollar had an unfavorable impact of $80 million on operating expenses in 2021 compared to 2020. There was no hedging activity within operating expenses.

Sales and Marketing

Sales and marketing expenses primarily consist of advertising and marketing program costs (both online and offline), employee compensation including stock-based compensation, certain user coupons and rewards, contractor costs, facilities costs and depreciation on equipment. Online marketing expenses represent traffic acquisition costs in various channels such as paid search, affiliates marketing and display advertising. Offline advertising primarily includes brand campaigns and buyer/seller communications.

The increase in sales and marketing expenses in 2021 compared to 2020 was primarily due to increases of $84 million in online advertising expenses, $37 million in employee compensation and $25 million in executive severance costs. These increases were offset by a decrease of $78 million in certain coupons and rewards.

Product Development

Product development expenses primarily consist of employee compensation including stock-based compensation, contractor costs, facilities costs and depreciation on equipment. Product development expenses are net of required capitalization of major platform and other product development efforts, including the development and maintenance of our technology platform. Our top technology priorities include payment intermediation capabilities, products to grow the seller tools ecosystem and product experiences that delight our customers and enhance the buying experience for our enthusiasts.

The increase in product development expenses in 2021 compared to 2020 was primarily due to increases of $227 million in employee related costs. Capitalized internal use and platform development costs were $127 million and $129 million in 2021 and 2020, respectively, and are primarily reflected as a cost of net revenues when amortized in future periods.

General and Administrative

General and administrative expenses primarily consist of employee compensation including stock-based compensation, contractor costs, facilities costs, depreciation of equipment, employer payroll taxes on stock-based compensation, legal expenses, restructuring, insurance premiums and professional fees. Our legal expenses, including those related to various ongoing legal proceedings, may fluctuate substantially from period to period.

The decrease in general and administrative expenses in 2021 compared to 2020 was primarily due to the absence of costs related to our CEO transition in 2020 of $33 million and a decrease in charitable contributions of approximately $36 million.

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Provision for Transaction Losses

Provision for transaction losses primarily consists of transaction loss expense associated with our buyer protection programs, losses from our managed payments services, fraud and bad debt expense associated with our accounts receivable balance. We expect our provision for transaction losses to fluctuate depending on many factors, including changes to our protection programs and the impact of regulatory changes.

The increase in provision for transaction losses in 2021 compared to the same period in 2020 was primarily due to higher chargeback losses of $81 million incurred for managed payments as we scaled the platform and higher customer protection program costs of $63 million. These increases were partially offset by a decrease in bad debt expense of $52 million as a result of fees collected through the managed payments platform.

Gain (Loss) on Equity Investments and Warrant, net

Gain (loss) on equity investments and warrant, net primarily consists of gains and losses related to our various types of equity investments, including our equity investments in Adevinta, KakaoBank and Adyen, and gains and losses due to changes in fair value of the warrant received from Adyen. The following table presents gain (loss) on equity investments and warrant, net for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","% Change","","2020","","% Change","","2019"],["Change in fair value of equity investment in Adevinta","$","(3,070)","","","**","","$","\u2014","","","\u2014","%","","$","\u2014"],["Gain (loss) on sale of shares in Adevinta (1)","9","","","**","","\u2014","","","\u2014","%","","\u2014"],["Change in fair value of warrant","354","","","(54)","%","","770","","","**","","133"],["Change in fair value of equity investment in Adyen","(10)","","","**","","\u2014","","","\u2014","%","","\u2014"],["Change in fair value of equity investment in KakaoBank","403","","","69","%","","239","","","**","","\u2014"],["Gain (loss) on sale of shares in KakaoBank","83","","","**","","\u2014","","","\u2014","%","","\u2014"],["Impairment of equity investment in Paytm Mall","(160)","","","**","","\u2014","","","\u2014","%","","\u2014"],["Gain (loss) on other investments (2)","26","","","**","","(2)","","","**","","\u2014"],["Total gain (loss) on equity investments and warrant, net","$","(2,365)","","","**","","$","1,007","","","**","","$","133"]]
[[/GREPCENT_TABLE]]

(1)Gain (loss) on sale of shares in Adevinta included an $88 million gain recognized on the sale of the shares offset by a $79 million loss from the change in fair value of the shares sold through the date of sale.

(2)Gain (loss) on other investments primarily included: (i) in 2021, primarily a $41 million upward adjustment and a $10 million impairment recorded on equity investments without readily determinable fair values; (ii) in 2020, primarily a $40 million impairment recorded on an investment and a $37 million gain for the receipt of proceeds that were held in escrow related to a long-term investment that was sold in 2018.

**    Not meaningful

The decrease in gain (loss) on equity method investments and warrant, net in 2021 compared to 2020 was primarily driven by a $3.1 billion loss from the change in fair value of our equity investment in Adevinta, a $160 million impairment recorded on our equity investment in Paytm Mall and a $416 million change in the gain related to the Adyen warrant. These decreases were partially offset by a $164 million change in unrealized gain related to our equity investment in KakaoBank and a $83 million gain on sale of a portion of our shares in KakaoBank.

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Interest and Other, Net

Interest and other, net primarily consists of interest earned on cash, cash equivalents and available-for-sale investments, as well as foreign exchange transaction gains and losses and interest expense, consisting of interest charges on any amounts borrowed and commitment fees on unborrowed amounts under our credit agreement and interest expense on our outstanding debt securities and commercial paper, if any. The following table presents interest and other, net for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","% Change","","2020","","% Change","","2019"],["Interest income","$","19","","","(50)","%","","$","38","","","(66)","%","","$","112"],["Interest expense","(269)","","","(12)","%","","(304)","","","(2)","%","","(311)"],["Foreign exchange and other","90","","","**","","(32)","","","(38)","%","","(52)"],["Total interest and other, net","$","(160)","","","(46)","%","","$","(298)","","","19","%","","$","(251)"]]
[[/GREPCENT_TABLE]]

** Not meaningful

Interest and other, net expense decreased in 2021 compared to 2020 primarily due to foreign exchange transaction gains and lower interest expense.

Income Tax Provision

The following table presents provision for income taxes for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Income tax provision (benefit)","$","146","","","$","858","","","$","219"],["Effective tax rate","36.6","%","","25.6","%","","13.2","%"]]
[[/GREPCENT_TABLE]]

The increase in our effective tax rate in 2021 compared to 2020 was primarily due to non-deductible losses on investments, partially offset by a benefit from the release of a valuation allowance. The effective tax rate in 2020 included the effects of a retroactive California law change including incremental taxes on the gain on the sale of StubHub, partially offset by an increased tax benefit from stock-based compensation.

We are regularly under examination by tax authorities both domestically and internationally. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, although we cannot assure you that this will be the case given the inherent uncertainties in these examinations. Due to the ongoing tax examinations, it is generally impractical to determine the amount and timing of these adjustments. However, we expect several tax examinations to close within the next twelve months. See “Note 15 — Income Taxes” to the consolidated financial statements included in this report for more information on estimated settlements within the next twelve months.

Discontinued Operations

On November 14, 2021, we completed the previously announced sale of 80.01% of the outstanding equity interests of eBay Korea to Emart. We have classified the results of our eBay Korea business as discontinued operations in our consolidated statement of income for the periods presented through November 14, 2021. Additionally, the related assets and liabilities associated with the discontinued operations are classified as discontinued operations in our consolidated balance sheet.

On June 24, 2021, we completed the previously announced transfer of our Classifieds business to Adevinta. We have classified the results of our Classifieds business as discontinued operations in our consolidated statement of income for the periods presented through June 24, 2021. Additionally, the related assets and liabilities associated with the discontinued operations are classified as discontinued operations in our consolidated balance sheet.

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On February 13, 2020, we completed the previously announced sale of our StubHub business to an affiliate of viagogo. Beginning in the first quarter of 2020, StubHub’s financial results for periods prior to the sale have been reflected in our consolidated statement of income as discontinued operations. Additionally, the related assets and liabilities associated with the discontinued operations in the prior periods are classified as discontinued operations in our consolidated balance sheet.

See “Note 3 — Discontinued Operations” in our consolidated financial statements included elsewhere in this report for additional information.

Non-GAAP Measures of Financial Performance

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles, we use FX-Neutral net revenues, which are non-GAAP financial measures. Management uses the foregoing non-GAAP measures in reviewing our financial results. We define FX-Neutral net revenues as net revenues minus the exchange rate effect. We define exchange rate effect as the year-over-year impact of foreign currency movements using prior period foreign currency rates applied to current year transactional currency amounts, excluding hedging activity.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and its prospects for the future. Specifically, we believe these non-GAAP measures provide useful information to both management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results and business outlook. In addition, because we have historically reported certain non-GAAP results to investors, we believe that the inclusion of these non-GAAP measures provide consistency in our financial reporting.

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The following tables present a reconciliation of FX-Neutral GMV and FX-Neutral net revenues (each as defined below) to our reported GMV and net revenues for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended Year Ended December 31,"],["","2021","","2020"],["","As Reported","","Exchange Rate Effect (1)","","FX-Neutral (2)","","As Reported","","As Reported % Change","","FX-Neutral % Change"],["GMV","$","87,365","","","$","2,362","","","$","85,003","","","$","87,608","","","\u2014","%","","(3)","%"],["Net Revenues:"],["Net transaction revenues (3)","$","9,772","","","$","180","","","$","9,592","","","$","8,243","","","19","%","","17","%"],["Marketing services and other revenues","648","","","8","","","640","","","651","","","\u2014","%","","(2)","%"],["Total net revenues","$","10,420","","","$","188","","","$","10,232","","","$","8,894","","","17","%","","15","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended Year Ended December 31,"],["","2020","","2019"],["","As Reported","","Exchange Rate Effect (1)","","FX-Neutral (2)","","As Reported","","As Reported % Change","","FX-Neutral % Change"],["GMV","$","87,608","","","$","46","","","$","87,562","","","$","72,134","","","21","%","","21","%"],["Net Revenues:"],["Net transaction revenues (3)","$","8,243","","","$","25","","","$","8,218","","","$","6,581","","","25","%","","26","%"],["Marketing services and other revenues","651","","","1","","","650","","","848","","","(23)","%","","(23)","%"],["Total net revenues","$","8,894","","","$","26","","","$","8,868","","","$","7,429","","","20","%","","21","%"]]
[[/GREPCENT_TABLE]]

(1)We define exchange rate effect as the year-over-year impact of foreign currency movements using prior period foreign currency rates applied to current year transactional currency amounts, excluding hedging activity.

(2)We define FX-Neutral GMV as GMV minus the exchange rate effect. We define the non-GAAP financial measures of FX-Neutral net revenues as net revenues minus the exchange rate effect.

(3)Net transaction revenues were net of $65 million, $15 million and $81 million of hedging activity in 2021, 2020 and 2019, respectively.     

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Liquidity and Capital Resources

Cash Flows 

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["","(In millions)"],["Net cash provided by (used in):"],["Continuing operating activities","$","3,093","","","$","3,004","","","$","2,416"],["Continuing investing activities","(1,417)","","","(179)","","","2,900"],["Continuing financing activities","(6,557)","","","(5,680)","","","(7,087)"],["Effect of exchange rates on cash, cash equivalents and restricted cash","24","","","77","","","(33)"],["Net increase in cash, cash equivalents and restricted cash - discontinued operations","4,669","","","3,376","","","581"],["Net increase (decrease) in cash, cash equivalents and restricted cash","$","(188)","","","$","598","","","$","(1,223)"]]
[[/GREPCENT_TABLE]]

Continuing Operating Activities

Our operating cash flows arise primarily from cash received from our customers on our platforms offset by cash payments for sales and marketing, employee compensation and payment processing expenses.

Cash provided by continuing operating activities of $3.1 billion in 2021 compared to $3.0 billion in 2020 was primarily attributable to an increase in operating income from continuing operations of $287 million. The increase in operating income from continuing operations was primarily due to an increase in revenues, primarily as a result of the migration of managed payments on a global basis and the associated higher take rate as noted in our comments in “Net Transaction Revenues.” The remaining changes in continuing operating cash flows were attributable to changes in non-cash items and favorable working capital movements due to lower accounts receivable from the migration to managed payments and lower accrued liabilities.

Continuing Investing Activities

Cash used in investing activities of $1.4 billion in 2021 was primarily attributable to purchases of investments of $22.2 billion and property and equipment of $444 million. These purchases were partially offset by proceeds of $18.9 billion from the maturities and sales of investments and $2.3 billion from the sale of approximately 135 million of our voting shares in Adevinta.

Cash used in investing activities of $0.2 billion in 2020 was primarily attributable to cash paid for purchases of investments of $32.9 billion and property and equipment of $463 million, offset by proceeds of $33.1 billion from the maturities and sales of investments.

The largely offsetting effects of purchases of investments and maturities and sale of investments results from the management of our investments. As our immediate cash needs change, purchase and sale activity will fluctuate.

Continuing Financing Activities

Cash used in financing activities of $6.6 billion in 2021 was primarily driven by common stock repurchases of $7.1 billion, of which $2.5 billion related to repurchases under an accelerated share repurchase program. Cash used in financing activities also included debt repayments of $1.2 billion, which was comprised of $750 million related to our 6.000% senior fixed rate notes due 2056 that were redeemed and $405 million related to our 2.600% senior fixed rate notes due 2022 that were repurchased pursuant to a tender offer, and $466 million of cash dividends paid, partially offset by proceeds from debt issuances of $2.5 billion.

Cash used in financing activities of $5.7 billion in 2020 was primarily used to repurchase $5.1 billion of common stock, repay outstanding debt of $1.8 billion and pay $447 million of cash dividends, partially offset by proceeds from debt issuances of $1.8 billion.

The positive effect of exchange rate movements on cash, cash equivalents and restricted cash was due to the weakening of the U.S. dollar against other currencies, primarily the euro, during 2021 and 2020.

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Liquidity and Capital Resource Requirements

As of December 31, 2021 and December 31, 2020, we had assets classified as cash and cash equivalents, as well as short-term and long-term non-equity investments from continuing operations, in an aggregate amount of $7.3 billion and $3.8 billion, respectively. We believe that our cash, cash equivalents and short-term and long-term investments, together with cash expected to be generated from operations, borrowings available under our credit agreement and commercial paper program, and our access to capital markets, will be sufficient to satisfy our material cash requirements over the next 12 months and for the foreseeable future.

However, COVID-19 and related measures to contain its impact have caused material disruptions in both national and global financial markets and economies. The future impact of COVID-19 and these containment measures cannot be predicted with certainty and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity, and we cannot assure that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.

Senior Notes

As of December 31, 2021, we had floating- and fixed-rate senior notes outstanding with varying maturities for an aggregate principal amount of $9.1 billion, with $1.4 billion payable within 12 months. Future interest payments associated with the senior notes total $2.5 billion, with $0.2 billion payable within 12 months. The net proceeds from the issuances of these senior notes are used for general corporate purposes, including, among other things, capital expenditures, share repurchases, repayment of indebtedness and possible acquisitions.

In February 2022, we redeemed the $750 million aggregate principal amount of the 3.800% senior notes due March 2022. Total cash consideration paid was $750 million as the redemption price was equal to 100% of the principal amount. In addition, we paid accrued and unpaid interest on the principal amount.

Commercial Paper

We have a commercial paper program pursuant to which we may issue commercial paper notes in an aggregate principal amount at maturity of up to $1.5 billion outstanding at any time with maturities of up to 397 days from the date of issue. As of December 31, 2021, there were no commercial paper notes outstanding.

Credit Agreement

In March 2020, we entered into a credit agreement that provides for an unsecured $2 billion five-year credit facility. We may also, subject to the agreement of the applicable lenders, increase commitments under the revolving credit facility by up to $1 billion. Funds borrowed under the credit agreement may be used for working capital, capital expenditures, acquisitions and other general corporate purposes. As of December 31, 2021, no borrowings were outstanding under our $2 billion credit agreement. 

Credit Ratings

As of December 31, 2021, we were rated investment grade by Standard and Poor’s Financial Services, LLC (long-term rated BBB+, short-term rated A-2, with a stable outlook) and Moody’s Investor Service (long-term rated Baa1, short-term rated P-2, with a stable outlook). We disclose these ratings to enhance the understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our borrowing costs depend, in part, on our credit ratings and any actions taken by these credit rating agencies to lower our credit ratings will likely increase our borrowing costs. 

We were in compliance with all financial covenants in our outstanding debt instruments for the period ended December 31, 2021. For additional details related to our debt, please see “Note 10 — Debt” to the consolidated financial statements included in this report.

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Leases

We have operating leases for office space, data centers, as well as other corporate assets that we utilize under lease arrangements. As of December 31, 2021, we had fixed lease payment obligations of $366 million, with $156 million payable within 12 months. For additional details related to our leases, please see “Note 11 — Leases” to the consolidated financial statements included in this report.

Purchase Obligations

Purchase obligation amounts include minimum purchase commitments for advertising, capital expenditures (computer equipment, software applications, engineering development services, construction contracts) and other goods and services entered into in the ordinary course of business. As of December 31, 2021, we had purchase obligations of $151 million, with $125 million payable within 12 months.

Income Taxes

We are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits of $318 million included in other liabilities on our consolidated balance sheet as of December 31, 2021. The timing of the resolution and/or closure of audits is highly uncertain, and it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

As of December 31, 2021, our assets classified as cash and cash equivalents, and short-term and long-term non-equity investments from continuing operations included assets held in certain of our foreign operations totaling approximately $5.0 billion. As we repatriate these funds to the U.S., we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes on those amounts during the period when such repatriation occurs. We have accrued deferred taxes for the tax effect of repatriating the funds to the U.S.

See “Note 15 — Income Taxes” to the consolidated financial statements included in this report for more information on unrecognized tax benefits and deferred taxes.

Stock Repurchases

Our stock repurchase programs are intended to programmatically offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, to make opportunistic and programmatic repurchases of our common stock to reduce our outstanding share count. Any share repurchases under our stock repurchase programs will be funded from our working capital or other financing alternatives.

We expect, subject to market conditions and other uncertainties, to continue making opportunistic and programmatic repurchases of our common stock. However, our stock repurchase programs may be limited or terminated at any time without prior notice. The timing and actual number of shares repurchased will depend on a variety of factors, including corporate and regulatory requirements, the impacts of the COVID-19 pandemic, price and other market conditions and management’s determination as to the appropriate use of our cash. 

During 2021, we repurchased approximately $7.0 billion of our common stock under our stock repurchase programs, including the accelerated repurchase agreement we entered into during the fourth quarter of 2021. As of December 31, 2021, a total of approximately $2.0 billion remained available for future repurchases of our common stock under our stock repurchase programs. In February 2022 our Board authorized an additional $4.0 billion stock repurchase program, with no expiration from the date of authorization. See “Note 13 — Stockholders’ Equity” to the consolidated financial statements included in this report for more information about our stock repurchase programs.

Dividends

The company paid a total of $466 million and $447 million in cash dividends in 2021 and 2020, respectively. In February 2022, we declared a cash dividend of $0.22 per share of common stock to be paid on March 18, 2022 to stockholders of record as of March 10, 2022.

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Other Capital Resource Requirements

We actively monitor all counterparties that hold our cash and cash equivalents and non-equity investments, focusing primarily on the safety of principal and secondarily on improving yield on these assets. We diversify our cash and cash equivalents and investments among various counterparties in order to reduce our exposure should any one of these counterparties fail or encounter difficulties. To date, we have not experienced any material loss or lack of access to our invested cash, cash equivalents or short-term investments; however, we can provide no assurances that access to our invested cash, cash equivalents or short-term investments will not be impacted by adverse conditions in the financial markets, including, without limitation, as a result of the impact of the COVID-19 pandemic. At any point in time we have funds in our operating accounts and customer accounts that are deposited and invested with third party financial institutions.

We have a cash pooling arrangement with a financial institution for cash management purposes. As of December 31, 2021, we had a total of $3.7 billion in aggregate cash deposits, partially offset by $3.5 billion in cash withdrawals, held within the financial institution under the cash pooling arrangement. See “Note 12 — Commitments and Contingencies” to the consolidated financial statements included in this report for more information about our cash pooling arrangement.

We have entered into various indemnification agreements and, in the ordinary course of business, we have included limited indemnification provisions in certain of our agreements with parties with which we have commercial relations. It is not possible to determine the maximum potential loss under these various indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in our consolidated statement of income in connection with our indemnification provisions have not been significant, either individually or collectively. See “Note 12 — Commitments and Contingencies” to the consolidated financial statements included in this report for more information about our indemnification provisions.

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Critical Accounting Policies, Judgments and Estimates

General

The preparation of our consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and related notes and other disclosures included in this report.

Revenue Recognition

We may enter into certain revenue contracts that include promises to transfer multiple goods or services including discounts on future services. We also may enter into arrangements to purchase services from certain customers. As a result, significant interpretation and judgment is sometimes required to determine the appropriate accounting for these transactions including: (1) whether services are considered distinct performance obligations that should be accounted for separately or combined; (2) developing an estimate of the stand-alone selling price of each distinct performance obligation; (3) whether revenue should be reported gross (as eBay is acting as a principal), or net (as eBay is acting as an agent); (4) evaluating whether a promotion or incentive is a payment to a customer; and (5) whether the arrangement would be characterized as revenue or reimbursement of costs incurred. Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

Income Taxes

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties and the complexity of taxes on foreign earnings. We review our tax positions quarterly and adjust the balances as new information becomes available. Tax positions are evaluated for potential reserves for uncertainty based on the estimated probability of sustaining the position under examination. Our income tax rate is affected by the tax rates that apply to our foreign earnings including U.S. minimum taxes on foreign earnings. The deferred tax benefit derived from the amortization of our intellectual property is based on the fair value, which has been agreed with foreign tax authorities. The deferred tax benefit may from time to time change based on changes in tax rates. Management has no specific plans to indefinitely reinvest the undistributed earnings of our foreign subsidiaries at the balance sheet date.

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates that are based on a number of factors, including our historical experience and short-range and long-range business forecasts. As of December 31, 2021, we had a valuation allowance on certain net operating loss and tax credit carryforwards based on our assessment that it is more likely than not that the deferred tax asset will not be realized.

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We recognize and measure uncertain tax positions in accordance with generally accepted accounting principles in the U.S., or GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. GAAP further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter in which such change occurs. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We file annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax position is audited by the relevant tax authorities and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the related interest, where appropriate in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.

The following table presents our effective tax rates for the periods indicated (in millions, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Income tax provision (benefit)","$","146","","","$","858","","","$","219"],["Effective tax rate","36.6","%","","25.6","%","","13.2","%"]]
[[/GREPCENT_TABLE]]

Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets or liabilities, or by changes or interpretations in tax laws, regulations or accounting principles. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service, as well as various state and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Based on our results for the year ended December 31, 2021, a one-percentage point change in our provision for income taxes as a percentage of income before taxes would have resulted in an increase or decrease in the provision of approximately $4 million, resulting in an approximate $0.01 change in diluted earnings per share.

Goodwill

The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill.

As of December 31, 2021, our goodwill totaled $4.2 billion. We assess the impairment of goodwill of our reporting unit annually, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. The market approach uses comparable company information to determine revenue and earnings multiples to value our reporting unit. Failure to achieve these expected results or market multiples may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment test of goodwill as of August 31, 2021 and 2020. As of December 31, 2021, we determined that no impairment of the carrying value of goodwill was required. See “Note 4 — Goodwill and Intangible Assets” to the consolidated financial statements included in this report.

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Legal Contingencies

In connection with certain pending litigation and other claims, we have estimated the range of probable loss, net of expected recoveries, and provided for such losses through charges to our consolidated statement of income. These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based upon new information and future events.

From time to time, we are involved in disputes and regulatory inquiries that arise in the ordinary course of business. We are currently involved in legal proceedings, some of which are discussed in “Item 1A: Risk Factors,” “Item 3: Legal Proceedings” and “Note 12 — Commitments and Contingencies” to the consolidated financial statements included in this report. We believe that we have meritorious defenses to the claims against us, and we intend to defend ourselves vigorously. However, even if successful, our defense against certain actions will be costly and could require significant amounts of management’s time and result in the diversion of significant operational resources. If the plaintiffs were to prevail on certain claims, we might be forced to pay significant damages and licensing fees, modify our business practices or even be prohibited from conducting a significant part of our business. Any such results could materially harm our business and could result in a material adverse impact on the financial position, results of operations or cash flows.

Recent Accounting Pronouncements

See "Note 1 — The Company and Summary of Significant Accounting Policies" to the consolidated financial statements included in this report, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.

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