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eBay Poised to Alleviate PayPal Fears (Update 1)

Updated from 2:14 p.m. EST to provide analyst comments regarding PayPal in the sixth paragraph.

NEW YORK (TheStreet) -- When eBay (EBAY) reports first-quarter results after the stock market closes Wednesday, analysts expect that the company will reiterate the highlights of its analyst day meeting in March while attempting to alleviate fears about the ability of eBay's PayPal e-commerce business to sustain profitability.

"I think the market may still need some convincing about that [PayPal], so any more commentary about plans to offset the potential fees in the credit card companies, how they will be able to compete in what's becoming a more competitive digital wallet landscape I think is something that investors will keep any eye on," R.J. Hottovy, an analyst at Chicago-based Morningstar said over the phone.

If the company handles all this well on the earnings call, "I think most investors will walk away from the call happy," said Hottovy.

At last month's analyst meeting, eBay highlighted continued momentum in the company's Marketplaces business, in particular in mobile transactions and payments. It also mentioned the huge international opportunity the company is presented with, as it tries to expand into the emerging markets and PayPal tries to move towards more points of distribution online.

The company also provided commentary to alleviate fears about PayPal's ability to sustain profitability in the face of competing platforms coming to the market but also MasterCard (MA) potentially enacting a digital wallet fee this summer. MasterCard is expected to begin charging fees for PayPal transactions that go through its payments network.

Scott Kessler, an analyst with S&P Capital IQ said that while eBay is "extremely" well positioned for online and mobile transactions, he's finding it harder to buy into the company's real world retail story. "I'm skeptical about that," he said. PayPal has forged widespread alliances with vendors, restaurants, convenience stores and gas stations to result in millions of locations that offer PayPal, but Kessler said that it still hasn't shown that its real world services offer any additional advantages over credit card payments and the type of security it's known for in the mobile space and online.

Colin Gillis, an analyst at BGC Partners in New York, said eBay is his top pick for exposure to e-commerce and payments. He estimates that the company will book $3.7 billion in revenues, representing a 15.5% year-on-year growth and 5.2% sequential decline. Analysts polled by Thomson Reuters are looking for sales of $3.7 billion.

His earnings estimate is 64 cents a share versus 55 cents the prior year, 70 cents in previous quarter and the consensus target of 62 cents.

"They just finished two years of accelerating growth ... that momentum should continue," commented Gillis over the phone. "Guidance should be in line and people should be positive on its multi-year outlook because they had upbeat data at the analyst day."

Analysts will continue to keep an eye on the company's gross merchandise volume, a closely watched measure of eBay's performance.

"We view sentiment as good for eBay given that the company has ... put out solid three-year targets for GMV growth and their track record for executing on those goals," noted John Blackledge, a New York-based analyst at Cowen & Co.

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.

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