SEC Company Response from EBAY INC (EBAY) (CIK 0001065088) (EBAY) — Oct 9, 2018
EBAY INC (EBAY) (CIK 0001065088)
Date: Oct. 9, 2018 · CIK: 0001065088 · Accession: 0001065088-18-000036
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-37713
Referenced dates: May 14, 2015, September 24, 2018
Letter
VIA EDGAR Division of Corporation Finance Filed February 5, 2018 Form 10-Q for the quarter ended June 30, 2018 Filed July 19, 2018 File No. 001-37713
Dear Ms. Thompson:
Thank you for your letter dated September 24, 2018 addressed to eBay Inc. (“eBay,” the “Company” or “we”) setting forth comments of the staff (the “Staff”) of the Division of Corporation Finance of the U.S. Securities and Exchange Commission on the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Form 10-K”) and Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018.
To facilitate the Staff’s review, we have keyed our responses to the headings and the numbered comments used in the Staff’s comment letter, which are reproduced in italics below and followed in each case by the Company’s response.
Form 10-K for the year ended December 31, 2017
General
1.
In a letter to the staff dated May 14, 2015, you discussed your subsidiary PayPal’s 2015 settlement with OFAC for processing transactions to or from Sudan, and PayPal’s disclosure to OFAC of subsequent similar transactions referencing sanctioned countries. On page 20 of its 10-K filed February 7, 2018, PayPal provides similar information. Additionally, we are aware of news reports indicating that entities in North Korea, Sudan and Syria, possibly including their governments, may have offered or sold items on the ebay.com website. North Korea, Sudan and Syria are designated by the Department of State as state sponsors of terrorism, and are subject to U.S. economic sanctions and/or export controls.
Please describe to us the nature and extent of any past, current, and anticipated contacts with North Korea, and any such contacts with Sudan and Syria since your 2015 letter, including contacts with their governments, whether through subsidiaries, affiliates, partners, customers, joint ventures or other direct or indirect arrangements. Please also discuss the materiality of those contacts, in quantitative terms and in terms of qualitative factors that a reasonable investor would deem important in making an investment decision. Tell us the approximate dollar amounts of revenues, assets and liabilities associated with those countries for the last three fiscal years and the subsequent interim period. Address for us the potential impact of the investor sentiment evidenced by divestment and similar initiatives that have been directed toward companies that have operations associated with U.S.-designated state sponsors of terrorism. Finally, to the extent PayPal has self-reported to OFAC possible violations of North Korea, Sudan or Syria economic sanctions subsequent to your 2015 letter, please describe the transactions to us and tell us the maximum dollar amount of the potential related penalties.
Pursuant to a telephone call on October 5, 2018 between Jennifer Thompson, Accounting Branch Chief, and Eric Haueter of Sidley Austin LLP, the Company’s deadline for responding to this comment has been extended to October 23, 2018.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations, page 39
2.
Please revise your results of operations discussion to provide greater insight to your investors regarding the underlying causes of increases or decreases in the components of net income. For example, when you identify intermediate causes of changes in revenues, such as changes in GMV and “take rates,” please describe in sufficient detail the underlying reasons driving such changes.
We endeavor to disclose the most significant drivers of business performance contributing to net income, including changes in revenue from transaction volume, take rates and various expenditures. We will provide additional analysis of intermediate factors, for example changes in pricing policy, average selling price of items sold or the impact of investments in the customer experience, that drive change beyond our current discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations, when we can identify them and when they represent significant reasons for changes in net income.
Form 10-Q for the quarter ended June 30, 2018
Notes to Condensed Consolidated Financial Statements
Note 1 - The Company and Summary of Significant Accounting Policies
Revenue Recognition, page 7
3.
We note your net transaction revenues consist of a single performance obligation. Please address the following items for your Marketplace arrangements:
•
Clarify the exact nature of this performance obligation. Your reference to core services is unclear. Refer to ASC 606-10-50-12(c).
•
Tell us each promised good or service you have identified in these arrangements. In addition, provide us your analysis regarding how you determined that all goods and services in these arrangements should be combined. Reference ASC 606-10-25-19 through 22.
•
Provide us with a specific and comprehensive discussion of the terms of your Price Match Guarantee, eBay Authenticate, shipping services and eBay Money Back Guarantee and if you determined that these are services provided to users or customers.
•
We note under ASC 605 you recognized revenue from listing fees ratably over the estimated period of the listing. Please help us understand why under ASC 606 you have combined these listing services with other services in determining your performance obligation. In addition, tell us how the final value fees and fees to promote or feature listings from sellers are calculated. Also clarify if and how promotion fees differ from listing fees.
In “Item 1. Business” in Part I of our 2017 Form 10-K, we refer to our business using the following terms, “….collectively [our platforms] connect millions of buyers and sellers around the world. The technologies and services that power our platforms are designed to enable sellers worldwide to organize and offer their inventory for sale, and buyers to find and purchase it, virtually anytime and anywhere.”
In our Marketplace platform, successfully bringing buyers and sellers together on a secure and trusted platform is the essence of our transaction revenue generating activities (i.e., our connection service or the “core service”) as discussed in “Note 1 - The Company and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements in our 2017 Form 10-K and our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018. We generate net transaction revenues from sellers primarily from final value fees and fees to promote or feature listings. eBay promises the following to its customers (i.e., sellers on the Marketplace platform):
1.
Connection service
2.
Basic and advanced listing service
We may charge the following types of fees to our customers in our core Marketplace platform: an insertion fee or listing fee, when a seller creates a listing and a final value fee when an item is sold. Sellers can also purchase additional features, like a subtitle, to enhance their listings in order to stand out and attract more buyers. These advanced listing services are a series of activities that boost the visibility of a listing across the site to provide a higher likelihood of a successful sale through a variety of methods, such as surfacing a listing higher in the search results.
We applied the following framework to determine whether the connection service and basic and advanced listing activities aggregate into a single performance obligation or represent separate performance obligations:
•
Referencing guidance under ASC 606-10-25-17, we determined that the listing services we provide (listing the item based on the seller’s specifications) to connect a buyer and a seller do not transfer a good or a service to the seller as the activities are performed. That is, the act of listing an item and featuring an item are activities necessary merely to fulfill a contract and thus not separate performance obligations in accordance with ASC 606-10-25-17. We note that the listing service may have little or limited value to the customer. The fees associated with the listing service are considerably lower than the final value fees and are often waived.
•
Further with reference to ASC 606-10-25-21(a) & (c), basic and advanced listing services and the connection service are not considered distinct within the context of the contract because we provide an integrated set of services that represent one output for which the customer has contracted. That is, the connection service is highly interdependent and interrelated with the listing service.
Based on the above analysis, we concluded that, although we provide and at times charge for what might be separate activities, they do not meet the criteria of being distinct and separate performance obligations in accordance with ASC 606-10-25-19. Therefore, the activities are combined into one performance obligation, which is to connect buyers and sellers on our core platform.
Acknowledging the Staff’s reference to ASC 606-10-50-12(c) in the context of our core service we intend to expand our disclosures in “Note 1 - The Company and Summary of Significant Accounting Policies” under the heading Revenue Recognition, to include much of the discussion now included under the heading Recently Adopted Accounting Pronouncements. In addition, we will provide a more complete discussion of the relevant portions of the concepts noted above in our response to this Comment #3.
Our Price Match Guarantee, eBay Authenticate, shipping services and eBay Money Back Guarantee programs are all designed to support the secure and trusted platforms on which our buyers and sellers transact. Our eBay Money Back Guarantee program (“eMBG”) is offered to maintain the integrity and quality of the connection service provided to the participants on our core Marketplace platform.
Buyers can use eMBG, subject to meeting certain conditions, when:
•
They do not receive an item; or
•
They receive an item that does not match the listing description
Most sellers work with buyers to resolve issues, but in case of a dispute eBay intervenes under the eMBG program and assists both parties to resolve the issue/claim. In accordance with the standard user agreement, buyers and sellers permit eBay to make the final decisions in all cases, including appeals, and agree to be bound by the decision reached by eBay. During this process, if eBay determines that the buyer did not receive an item or the item does not match the listing description, eBay will refund the full cost of the item and original shipping to the buyer and seek reimbursement from the seller. If sellers are found not to be at fault, eBay will refund the buyer and not recoup from the seller.
We view eMBG as eBay’s obligation contingently incurred in connection with providing eBay’s core service and a program designed and operated by eBay in an effort to provide a trusted and reliable platform. As noted above, eMBG is available on our core Marketplace platform, is not priced or sold separately and we have concluded that it does not represent a service provided to sellers, therefore, does not represent a promise in the arrangement under ASC 606-10-55-32.
Other programs like Price Match Guarantee and eBay Authenticate were inconsequential for the fiscal year ended December 31, 2017 and subsequent interim periods, but again, are indicative of our efforts to invest in technology and services to bolster buyer and seller confidence in our secure and trusted platforms. We comprehensively address shipping services in our response to comment #4.
Prior to the adoption of ASC 606 in our Marketplace platform, we considered the revenue recognition criteria in SEC Staff Accounting Bulletin No. 104 (SAB Topic 13-a), Revenue Recognition, in determining the timing of revenue recognition and ASC 605-25-3 for purposes of determining units of accounting. Considering that (1) basic listing, advanced listing and connection services are charged at standard prices published on eBay.com; and (2) basic listing and advanced listing services are provided over time, we concluded that it is appropriate to recognize our listing fee revenues ratably over the estimated period of the listing and to recognize the final value fee revenue at the time that the transaction is successfully closed, upon meeting the standard revenue recognition criteria at the time (e.g., persuasive evidence of an arrangement existed, service had been rendered, the fee was fixed or determinable, and collectability was reasonably assured).
Under ASC 606, consistent with the conclusions noted above, we identified a single performance obligation related to the core service offered to sellers in our Marketplace platform and believe additional services mainly to promote or feature listings at the option of the sellers are not distinct within the context of the contract. Accordingly, revenue related to connection services (“final value fees”), basic listing (“insertion fee”) and advanced listing (“feature fee” or “promotion fee”) is recognized when the single performance obligation is satisfied at a point in time, that is, when a transaction is successfully closed or when the listing expires or the item is delisted. This identification of one performance obligation and resulting recognition of revenue at a point in time under ASC 606 was a change from recognition of revenue over a period of time under the previous guidance.
With respect to the Staff’s specific question regarding how final value fees and fees to promote or feature listings from sellers are calculated we would like to highlight the following with regard to our core Marketplace platform in the United States:
•
Listing fee / Insertion fee charged for basic listing services - Every month, each seller is promised a certain number of free listings and then pays a nominal amount for incremental listings. Insertion fees are charged on most categories when a seller lists an item, are non-refundable and may be waived.
•
Feature listing fee is a fee charged to feature a listing and is a fixed amount. The fixed amount charged can vary by duration, category, type of feature selected and value thresholds. The feature listing fee is charged once the feature is purchased by the seller and is non-refundable.
•
Final value fee is charged to the seller when an item sells on the platform. It is calculated as a percentage of the total amount the buyer pays. A promotion fee, for example a promoted listing fee, is also calculated as a percentage of an item’s sale price and is only charged when an item is sold within a specific timeframe.
4.
We note that you generate revenue from revenue sharing arrangements. Please provide us with a comprehensive discussion of the terms of these arrangements including what specified services are provided. In addition, please provide us your analysis regarding how you determined when you are a principal and when you are an agent in these arrangements. Reference ASC 606-10-55-36 through 40 and ASC 606-10-50-12(c).
We note that the Company’s most significant revenue share arrangements are with shipping service providers. eBay contracts with shipping carriers who provide shipping services directly to eBay sellers, who can print shipping labels and packing slips via an integrated platform on the eBay site similar to the examples in ASC 606-10-25-18(f), “Providing a service of arranging for another party to transfer goods or services to a customer (for example, acting as an agent of another party, as described in paragraphs 606-10-55-36 thr
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CORRESP 1 filename1.htm Document eBay Inc. 2025 Hamilton Avenue San Jose, CA 95125 October 9, 2018 VIA EDGAR Ms. Jennifer Thompson Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re: eBay Inc. Form 10-K for the year ended December 31, 2017 Filed February 5, 2018 Form 10-Q for the quarter ended June 30, 2018 Filed July 19, 2018 File No. 001-37713 Dear Ms. Thompson: Thank you for your letter dated September 24, 2018 addressed to eBay Inc. (“eBay,” the “Company” or “we”) setting forth comments of the staff (the “Staff”) of the Division of Corporation Finance of the U.S. Securities and Exchange Commission on the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Form 10-K”) and Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018. To facilitate the Staff’s review, we have keyed our responses to the headings and the numbered comments used in the Staff’s comment letter, which are reproduced in italics below and followed in each case by the Company’s response. Form 10-K for the year ended December 31, 2017 General 1. In a letter to the staff dated May 14, 2015, you discussed your subsidiary PayPal’s 2015 settlement with OFAC for processing transactions to or from Sudan, and PayPal’s disclosure to OFAC of subsequent similar transactions referencing sanctioned countries. On page 20 of its 10-K filed February 7, 2018, PayPal provides similar information. Additionally, we are aware of news reports indicating that entities in North Korea, Sudan and Syria, possibly including their governments, may have offered or sold items on the ebay.com website. North Korea, Sudan and Syria are designated by the Department of State as state sponsors of terrorism, and are subject to U.S. economic sanctions and/or export controls. Please describe to us the nature and extent of any past, current, and anticipated contacts with North Korea, and any such contacts with Sudan and Syria since your 2015 letter, including contacts with their governments, whether through subsidiaries, affiliates, partners, customers, joint ventures or other direct or indirect arrangements. Please also discuss the materiality of those contacts, in quantitative terms and in terms of qualitative factors that a reasonable investor would deem important in making an investment decision. Tell us the approximate dollar amounts of revenues, assets and liabilities associated with those countries for the last three fiscal years and the subsequent interim period. Address for us the potential impact of the investor sentiment evidenced by divestment and similar initiatives that have been directed toward companies that have operations associated with U.S.-designated state sponsors of terrorism. Finally, to the extent PayPal has self-reported to OFAC possible violations of North Korea, Sudan or Syria economic sanctions subsequent to your 2015 letter, please describe the transactions to us and tell us the maximum dollar amount of the potential related penalties. 1 Pursuant to a telephone call on October 5, 2018 between Jennifer Thompson, Accounting Branch Chief, and Eric Haueter of Sidley Austin LLP, the Company’s deadline for responding to this comment has been extended to October 23, 2018. Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations, page 39 2. Please revise your results of operations discussion to provide greater insight to your investors regarding the underlying causes of increases or decreases in the components of net income. For example, when you identify intermediate causes of changes in revenues, such as changes in GMV and “take rates,” please describe in sufficient detail the underlying reasons driving such changes. We endeavor to disclose the most significant drivers of business performance contributing to net income, including changes in revenue from transaction volume, take rates and various expenditures. We will provide additional analysis of intermediate factors, for example changes in pricing policy, average selling price of items sold or the impact of investments in the customer experience, that drive change beyond our current discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations, when we can identify them and when they represent significant reasons for changes in net income. Form 10-Q for the quarter ended June 30, 2018 Notes to Condensed Consolidated Financial Statements Note 1 - The Company and Summary of Significant Accounting Policies Revenue Recognition, page 7 3. We note your net transaction revenues consist of a single performance obligation. Please address the following items for your Marketplace arrangements: • Clarify the exact nature of this performance obligation. Your reference to core services is unclear. Refer to ASC 606-10-50-12(c). • Tell us each promised good or service you have identified in these arrangements. In addition, provide us your analysis regarding how you determined that all goods and services in these arrangements should be combined. Reference ASC 606-10-25-19 through 22. • Provide us with a specific and comprehensive discussion of the terms of your Price Match Guarantee, eBay Authenticate, shipping services and eBay Money Back Guarantee and if you determined that these are services provided to users or customers. • We note under ASC 605 you recognized revenue from listing fees ratably over the estimated period of the listing. Please help us understand why under ASC 606 you have combined these listing services with other services in determining your performance obligation. In addition, tell us how the final value fees and fees to promote or feature listings from sellers are calculated. Also clarify if and how promotion fees differ from listing fees. In “Item 1. Business” in Part I of our 2017 Form 10-K, we refer to our business using the following terms, “….collectively [our platforms] connect millions of buyers and sellers around the world. The technologies and services that power our platforms are designed to enable sellers worldwide to organize and offer their inventory for sale, and buyers to find and purchase it, virtually anytime and anywhere.” 2 In our Marketplace platform, successfully bringing buyers and sellers together on a secure and trusted platform is the essence of our transaction revenue generating activities (i.e., our connection service or the “core service”) as discussed in “Note 1 - The Company and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements in our 2017 Form 10-K and our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018. We generate net transaction revenues from sellers primarily from final value fees and fees to promote or feature listings. eBay promises the following to its customers (i.e., sellers on the Marketplace platform): 1. Connection service 2. Basic and advanced listing service We may charge the following types of fees to our customers in our core Marketplace platform: an insertion fee or listing fee, when a seller creates a listing and a final value fee when an item is sold. Sellers can also purchase additional features, like a subtitle, to enhance their listings in order to stand out and attract more buyers. These advanced listing services are a series of activities that boost the visibility of a listing across the site to provide a higher likelihood of a successful sale through a variety of methods, such as surfacing a listing higher in the search results. We applied the following framework to determine whether the connection service and basic and advanced listing activities aggregate into a single performance obligation or represent separate performance obligations: • Referencing guidance under ASC 606-10-25-17, we determined that the listing services we provide (listing the item based on the seller’s specifications) to connect a buyer and a seller do not transfer a good or a service to the seller as the activities are performed. That is, the act of listing an item and featuring an item are activities necessary merely to fulfill a contract and thus not separate performance obligations in accordance with ASC 606-10-25-17. We note that the listing service may have little or limited value to the customer. The fees associated with the listing service are considerably lower than the final value fees and are often waived. • Further with reference to ASC 606-10-25-21(a) & (c), basic and advanced listing services and the connection service are not considered distinct within the context of the contract because we provide an integrated set of services that represent one output for which the customer has contracted. That is, the connection service is highly interdependent and interrelated with the listing service. Based on the above analysis, we concluded that, although we provide and at times charge for what might be separate activities, they do not meet the criteria of being distinct and separate performance obligations in accordance with ASC 606-10-25-19. Therefore, the activities are combined into one performance obligation, which is to connect buyers and sellers on our core platform. Acknowledging the Staff’s reference to ASC 606-10-50-12(c) in the context of our core service we intend to expand our disclosures in “Note 1 - The Company and Summary of Significant Accounting Policies” under the heading Revenue Recognition, to include much of the discussion now included under the heading Recently Adopted Accounting Pronouncements. In addition, we will provide a more complete discussion of the relevant portions of the concepts noted above in our response to this Comment #3. Our Price Match Guarantee, eBay Authenticate, shipping services and eBay Money Back Guarantee programs are all designed to support the secure and trusted platforms on which our buyers and sellers transact. Our eBay Money Back Guarantee program (“eMBG”) is offered to maintain the integrity and quality of the connection service provided to the participants on our core Marketplace platform. Buyers can use eMBG, subject to meeting certain conditions, when: • They do not receive an item; or • They receive an item that does not match the listing description 3 Most sellers work with buyers to resolve issues, but in case of a dispute eBay intervenes under the eMBG program and assists both parties to resolve the issue/claim. In accordance with the standard user agreement, buyers and sellers permit eBay to make the final decisions in all cases, including appeals, and agree to be bound by the decision reached by eBay. During this process, if eBay determines that the buyer did not receive an item or the item does not match the listing description, eBay will refund the full cost of the item and original shipping to the buyer and seek reimbursement from the seller. If sellers are found not to be at fault, eBay will refund the buyer and not recoup from the seller. We view eMBG as eBay’s obligation contingently incurred in connection with providing eBay’s core service and a program designed and operated by eBay in an effort to provide a trusted and reliable platform. As noted above, eMBG is available on our core Marketplace platform, is not priced or sold separately and we have concluded that it does not represent a service provided to sellers, therefore, does not represent a promise in the arrangement under ASC 606-10-55-32. Other programs like Price Match Guarantee and eBay Authenticate were inconsequential for the fiscal year ended December 31, 2017 and subsequent interim periods, but again, are indicative of our efforts to invest in technology and services to bolster buyer and seller confidence in our secure and trusted platforms. We comprehensively address shipping services in our response to comment #4. Prior to the adoption of ASC 606 in our Marketplace platform, we considered the revenue recognition criteria in SEC Staff Accounting Bulletin No. 104 (SAB Topic 13-a), Revenue Recognition, in determining the timing of revenue recognition and ASC 605-25-3 for purposes of determining units of accounting. Considering that (1) basic listing, advanced listing and connection services are charged at standard prices published on eBay.com; and (2) basic listing and advanced listing services are provided over time, we concluded that it is appropriate to recognize our listing fee revenues ratably over the estimated period of the listing and to recognize the final value fee revenue at the time that the transaction is successfully closed, upon meeting the standard revenue recognition criteria at the time (e.g., persuasive evidence of an arrangement existed, service had been rendered, the fee was fixed or determinable, and collectability was reasonably assured). Under ASC 606, consistent with the conclusions noted above, we identified a single performance obligation related to the core service offered to sellers in our Marketplace platform and believe additional services mainly to promote or feature listings at the option of the sellers are not distinct within the context of the contract. Accordingly, revenue related to connection services (“final value fees”), basic listing (“insertion fee”) and advanced listing (“feature fee” or “promotion fee”) is recognized when the single performance obligation is satisfied at a point in time, that is, when a transaction is successfully closed or when the listing expires or the item is delisted. This identification of one performance obligation and resulting recognition of revenue at a point in time under ASC 606 was a change from recognition of revenue over a period of time under the previous guidance. With respect to the Staff’s specific question regarding how final value fees and fees to promote or feature listings from sellers are calculated we would like to highlight the following with regard to our core Marketplace platform in the United States: • Listing fee / Insertion fee charged for basic listing services - Every month, each seller is promised a certain number of free listings and then pays a nominal amount for incremental listings. Insertion fees are charged on most categories when a seller lists an item, are non-refundable and may be waived. • Feature listing fee is a fee charged to feature a listing and is a fixed amount. The fixed amount charged can vary by duration, category, type of feature selected and value thresholds. The feature listing fee is charged once the feature is purchased by the seller and is non-refundable. • Final value fee is charged to the seller when an item sells on the platform. It is calculated as a percentage of the total amount the buyer pays. A promotion fee, for example a promoted listing fee, is also calculated as a percentage of an item’s sale price and is only charged when an item is sold within a specific timeframe. 4 4. We note that you generate revenue from revenue sharing arrangements. Please provide us with a comprehensive discussion of the terms of these arrangements including what specified services are provided. In addition, please provide us your analysis regarding how you determined when you are a principal and when you are an agent in these arrangements. Reference ASC 606-10-55-36 through 40 and ASC 606-10-50-12(c). We note that the Company’s most significant revenue share arrangements are with shipping service providers. eBay contracts with shipping carriers who provide shipping services directly to eBay sellers, who can print shipping labels and packing slips via an integrated platform on the eBay site similar to the examples in ASC 606-10-25-18(f), “Providing a service of arranging for another party to transfer goods or services to a customer (for example, acting as an agent of another party, as described in paragraphs 606-10-55-36 thr