EBay's Future is Going, Going ... Going Where?

EBay Plans To Split Off PayPal As Mobile Payments Gain Momentum
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The best days for eBay (EBAY) investors may be in the past. Between plans to split the dot-com giant in two and an uninspiring outlook for the holiday quarter in its latest report, it's hard to get excited about the company that helped launch the Internet revolution.

There was a time when eBay seemed immortal. Fellow Internet titans Yahoo (YHOO), Amazon.com (AMZN), and Overstock.com (OSTK) rolled out auction sites of their own during the sudsy dot-com bubble days to grab a piece of eBay's market. It didn't work. Even the mighty Craigslist -- leveling the playing field with its free classifieds -- did more damage to the newspaper industry than it did to eBay.

EBay was a rock star, and even though it continues to grow today, it's hard to get excited about what the future will hold for the online pioneer and its investors.

Bah, Humbug

Wednesday's quarterly results were acceptable. Net revenue climbed 12 percent as a combination of a 20 percent surge at PayPal, held back by a 6 percent top-line uptick for its namesake Marketplace business. Adjusted earnings rose a mere 1 percent, but that was enough to once again beat Wall Street's per-share profit targets.

Flattish profit growth may not seem really exciting, but the real dagger came in its outlook for the current quarter, where it sees net revenue clocking in between $4.85 billion and $4.95 billion. That's less than analysts were modeling, and it now finds eBay scaling back its guidance for all of 2014.

Some will argue that this isn't a reason to panic. We're still talking about 8 percent in revenue growth at the midpoint of that range. The rub here is that if top-line growth is decelerating, what will that mean for 2015 -- when analysts were banking on eBay's business to grow at a heady 12 percent clip?

Analysts weren't impressed. RBC Capital Markets analyst Mark Mahaney downgraded the stock on the report. He was not wowed by the soft marketplace growth as password theft and search engine optimization disruption ate into the site's traffic. That jargon suggests that eBay's not generating the same kind of organic traffic from search engines as it used to, given recent algorithm changes at Google (GOOG). That's a big deal for a site like eBay that can't just count on folks to peck out its website address on their own.

Paying the PayPal Piper

Analysts at Piper Jaffray and Cantor Fitzgerald stuck to their ratings but slashed their price targets. There's a general consensus that PayPal is faring a lot better than eBay.com, but even that kind of excitement is not without its caveats. Piper Jaffray's Gene Munster -- who also follows Apple (AAPL) -- is concerned about the impact that Monday's launch of Apple Pay will have on PayPal.

PayPal used to be able to vanquish online payment platforms rolled out by major banks with ease, but it could be a different scene with the entry of the world's largest consumer tech firm. Initially, Apple Pay will only be available to owners of the newest iPhones and iPads, but if it takes off, you can expect Apple to toss out a wider net.

It's against this backdrop that eBay expects to spin off PayPal next year. It's something that activists have been calling for, but it's also something that will expose the slowdown at eBay's original marketplace business. The company unloaded Skype a couple of years ago, and with PayPal heading into a challenging future on its own, it may make owning eBay less attractive than it was in the past.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. He's also proud of his 184-star positive feedback rating on eBay.com, though most of that was accumulated during the site's early years. The Motley Fool recommends and owns shares of Amazon.com, Apple, eBay, Google (A and C shares), and Yahoo!. Try any of our Foolish newsletter services free for 30 days. Check out our free report on the Apple Watch to learn where the real money is to be made for early investors.