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eBay Looks Like a Trap Ahead of Earnings

NEW YORK ( TheStreet) -- There have been plenty of discussions lately about the rise of mobile payments.

Companies like Intuit (INTU) and Square, which have begun to put pressure on the likes of VeriFone (PAY), have demonstrated the ability to service a growing need for person-to-person transactions.

I've chronicled the potential effect of Apple's (AAPL) entry into the realm of e-commerce. Unlike VeriFone, whose stock has lost roughly 50% of its value since we began following these developments, eBay (EBAY - Get Report), on the strength of its growing PayPal business, has gone pretty much unscathed.
[Read: <a target="blank" data-add-tracking="true" href=""><em>Will Economic Headwinds Stall the Equity Uptrend?</em></a>]

Although eBay does deserve credit for having built up PayPal to operate with multiple financial networks around the world, I worry that eBay's long-term growth has become too reliant on PayPal's capabilities. With second-quarter earnings due out Wednesday, I'd be cautious about "bidding up" these shares, which are already expensive. (Shares were changing hands at about $56.62 Tuesday morning.)

I'm looking for earnings (excluding one-time items) to arrive between 62 cents to 63 cents per share on revenue in a range of $3.85 billion to $4 billion. The Street is a bit more optimistic, however. Analysts are expecting earnings per share of 64 cents on revenue of $3.89 billion, down from $3.95 billion three months ago.

Without question, along with Amazon (AMZN), eBay is a force to be reckoned with in e-commerce. The question, though, is how much of eBay's long-term growth should investors rely upon beyond the strength of PayPal? Said another way, will eBay continue to serve as a thriving marketplace storefront for ecommerce or will the company migrate into a merchant/transaction business for PayPal? Both require different sets of expectations and assumptions.

But there are indications that management has begun to focus on the latter, which presents a different set of concerns altogether. Earlier this year, eBay inked a deal with NCR Corp. (NCR), which specializes in point-of-sale (POS) technology. The agreement allows for NCR's POS systems to integrate with PayPal's mobile services that will enable customers to pay for goods and services using their smartphones. The deal will also present PayPal users the option to use NCR's Convenience-Go app for gas stations and convenience stores.
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