Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. EBAY INC (1065088) 10-Q published on Oct 19, 2017 at 7:25 pm
Reporting Period: Sep 29, 2017
In 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the application of identifying performance obligations.
While we continue to assess all potential impacts of the standard, we currently identified one 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 sellers are not distinct within the context of the contract. Accordingly, certain fees paid by sellers for these services will be recognized when the single performance obligation is satisfied resulting, in some cases, in a change in the timing of recognition from current guidance. We are in the process of quantifying the impact resulting from the change in timing of recognition for both the Marketplace and StubHub platforms. We do not anticipate that the principal versus agent considerations under ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) will materially change how we present revenue. Further, we believe certain incentives such as coupons and rewards provided to certain users from which we do not earn revenue within the context of the identified contract of approximately $330 million for fiscal year 2016 could be recognized as sales and marketing expense, historically recorded as a reduction of revenue under current guidance. We are in process of quantifying the amount for fiscal year 2017.
In 2017, the FASB issued new guidance to simplify the application of the hedge accounting guidance in current GAAP and improve the financial reporting of hedging relationships by allowing entities to better align its risk management activities and financial reporting for hedging relationships through changes to both designation and measurement for qualifying hedging relationships and the presentation of hedge results. Further, the new guidance allows more flexibility in the requirements to qualify and maintain hedge accounting. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.
We have made multiple equity and cost method investments, which are reported in long-term investments on our condensed consolidated balance sheet. During the third quarter of 2017, we received a 5.44% ownership interest in Flipkart in exchange for our eBay India business and a $500 million cash investment, resulting in a cost method investment of $725 million. The gain on disposal of our eBay India business of $167 million was recorded in interest and other, net on our consolidated statement of income. During the second quarter of 2016, we sold a portion of our equity interest in Jasper Infotech Private Limited (Snapdeal). The resulting gain was recorded in interest and other, net on our consolidated statement of income. As of September 30, 2017 and December 31, 2016, our equity and cost method investments totaled $885 million and $118 million, respectively.
During the fourth quarter of 2016, we began the process of realigning our legal structure, subsequent to the distribution of PayPal Holdings, Inc., to better reflect how we manage and operate our platforms. We consider many factors in effecting this realignment, including foreign exchange exposures, long-term cash flows and cash needs of our platforms, capital allocation considerations and the associated tax effects. As a result, we achieved a substantial step-up in the tax basis of the intangible assets in our foreign eBay platforms in 2016. The step-up in tax basis of our foreign eBay platforms resulted from our election to terminate an existing tax ruling and finalize a new agreement with the foreign tax authority. In the fourth quarter of 2016, we recognized a tax benefit of $4.6 billion, which represented the income tax effect of this step-up in tax basis. During the first half of 2017, we recognized a noncash income tax charge of $376 million caused by the foreign exchange remeasurement of the associated deferred tax asset. In the first quarter of 2017, we achieved a step-up in the tax basis of the intangible assets in our foreign Classifieds platforms as a result of voluntary domiciling our Classifieds intangible assets into a new jurisdiction and recognized a tax benefit of $695 million.
The increase in StubHub net transaction revenues during the three and nine months ended September 30, 2017 compared to the same periods in 2016 was primarily due to an increase in StubHub take rate and StubHub GMV. The increase in StubHub transaction take rate during the three months ended September 30, 2017 compared to the same period in 2016 was primarily due to pricing strategies. The increase in StubHub transaction take rate during the nine months ended September 30, 2017 compared to the same period in 2016 was primarily due to pricing strategies and a decrease in our buyer incentives, which are accounted for as a reduction of revenue. The increase in StubHub GMV during the three and nine months ended September 30, 2017 compared to the same period in 2016 was primarily driven by Theater and international GMV growth, partially offset by a decrease in Sports.