Tough Competition May Dampen eBay Earnings Despite Healthy Holiday

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Internet commerce giant eBay (EBAY) reports fourth-quarter earnings after the bell Wednesday, but despite a healthy holiday sales season, Wall Street analysts aren't holding their breath for blowout numbers. Although eBay's payment service, PayPal, continues to be what one analyst calls a "crown jewel" for the company, strong competition from Amazon (AMZN) and others has put increasing market pressure on eBay."We think such market-share losses are driven by a shift within e-commerce to a multichannel environment," J.P. Morgan internet analyst Imran Khan wrote in a note to clients last week. "Thus, even if eBay isn't losing volume, volume is growing faster at other third-party sites, driving market-share declines."

EBay's report kicks off a slate of internet company earnings announcements, with web search juggernaut Google reporting Thursday after the bell. Wall Street analysts polled by Thomson Reuters are looking for eBay to report earnings of 40 cents per share.

Tough Competition From Red-Hot Amazon

EBay is hoping the strong holiday season -- comScore reported holiday sales were up 5% compared to last year -- will boost its bottom line for the quarter. But the company faces intense competition, most notably from Amazon, which is firing on all cylinders. Both sellers and buyers are taking notice.

In an ominous development for eBay, only 13% of people described the company as "the best e-commerce shopping experience," down from 27% in March of 2009, in a poll released by Piper Jaffray last week. By contrast, Amazon was named "the best" by some 65% of respondents, up from 35% over the same period.

In a survey of so-called "Power Sellers" -- users who move a lot of products online -- Khan found that 56% sold all of their volume on eBay, down from 65% in the same poll one year ago.

Meanwhile, a survey of buyers by Wall Street analyst group MKM Partners found that "nearly 43% of all consumers who shop online select Amazon.com as their No. 1 preferred site, by far surpassing 'other miscellaneous sites' (27.5%) and EBay (only 10.3%)."

Losing Market Share

"EBay's payments business is a great asset with a strong growth outlook, in our view, but its Marketplaces segment continues to lose share and weigh on sentiment," MKM analyst Tim Boyd wrote in a guest post on Barron's website. "We need to see evidence that eBay's share losses have stopped and/or reversed before we will be convinced that a turnaround is under way."

Meanwhile, in terms of Web traffic, the signs are looking good for Amazon -- not so much for eBay. According to data from Nielsen, Amazon saw a record 66.5 million unique visitors in December 2009, a 9% increase over November and a 8.8% increase from one year ago. Measured by page views, Amazon's audience grew by 33% over the last year, while eBay's traffic decreased 6% from November and suffered its third year-over-year page view decline in a row.

Still, some analysts are more optimistic than others.

"We expect eBay to report a solid fourth quarter, benefiting from a) an improving marketplace, b) strength in payments and c) currency tailwinds," Jefferies & Co. internet analyst Youssef Squali wrote in a research note last week.
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