What a rough week for eBay ( EBAY).

The e-commerce cum online-payment cum Internet communication company is back in one of its periodic slumps where, in the eyes of the world at large, it just can't do anything right.

The albatross around eBay's neck this time is Google's ( GOOG) Checkout, the latest offering from the search giant in its never-ending quest for new sources of revenue. As it stands now, Google Checkout seems simply to be an online venue to store your credit card information, with Google's assurance that it will be secure.

This has been coming for well over a year, ever since Google executives hinted at an online-payment service that the press quickly dubbed "the PayPal killer." Investors began predicting a collision between Google and eBay, with Google the odds-on winner. eBay's stock swooned but later recovered.

Now the other shoe has dropped with a more official unveiling of Google Checkout. Rather than assessing whether people will find the service useful, the coverage has focused on how this marks the beginning of the end for PayPal.

Analysts have stepped forward with their warnings and lowered price targets on eBay. Their chief argument is that if Google Checkout quickly evolves into more than a simple checkout service, it could quickly become the most common means of making payments on the Internet -- in essence, turning PayPal into eBay's own proprietary payment system.

Compounding the bad news were other PayPal-related developments that only made things seem worse. On Thursday, Jeff Jordan, the longtime eBay exec who had been overseeing PayPal, stepped down to spend more time with his family. He'll be replaced by Rajiv Dutta, the former eBay CFO who is currently president of Skype.

Then on Friday, news hit that eBay had placed Google Checkout on a list of payment services that it deems not acceptable for its community of merchants. eBay says the chief reason Google Checkout didn't make the cut was that it is too new and unproven. What's more, eBay merchants can still choose to use it for payments if they want.

But the reaction among some bloggers was that this was a clear attempt to unfairly block Google on eBay's home turf.

The upshot of all this is that eBay's stock slipped 9% last week and is now down 39% this year. It closed Friday at $26.62 -- its lowest close in two and a half years. (In early Friday trading, it was up 19 cents to $26.81.)

It's safe to say this is one of the darker chapters in eBay's 10-year history.

So the company is now on the ropes. And this is doubly important to investors, because dark moments like these create prime opportunities to either sell the stock on the bet that things can only get worse, or buy it because the market has severely overreacted.

Which is it? I'd argue the case for overreaction, i.e., that things are tough for eBay but nowhere near as dire as they seem right now.

First, eBay often finds itself cornered into a situation that seems certain to bring it down but from which it manages to escape -- it's sort of the Jack Bauer of Internet companies. There were the outages of 1999 that eBay addressed in a way that ended up giving it the reputation of being one of the more reliable e-commerce sites.

Then there was the great fee revolt of 2005, when merchants threatened to bolt because eBay was boosting fees. But in the end, most stayed, and the higher fees weeded out the weaker listings and left eBay with higher average selling prices and increased revenue.

Second, although the loss of Jordan is a blow -- he oversaw the growth of both eBay's auction marketplace and PayPal -- putting Dutta in charge should provide a smooth transition. Dutta's finance background seems better suited for PayPal than for Skype, which already has a strong leader in CEO Niklas Zennstrom.

Third, and most important, should Google try to create a full-fledged PayPal clone, it will be a sign to sell Google's stock, not eBay's. It's not that Google isn't capable -- it definitely has the technical know-how -- it's more that setting up an online-payment system like PayPal is a complex, thorny and expensive proposition.

Google would have to navigate regulations not just in the U.S. but in every market where it wants to use Google Checkout -- and each market's laws are devilishly complex. It will need to combat payment fraud in a more direct way than it has addressed click fraud to date. It will need to persuade users to trust the company with their financial data -- in addition to their search histories and their emails. People don't like to trust a single company with too much personal information.

Most concerning to investors, Google will need to spend a lot of money to create a system that can compete with PayPal's 1.5 million users, create an interface that's easier, faster and safer, and study all of the lessons it took PayPal a decade to learn. And, assuming it takes on all that, the move will surely drive down margins in the short term. Investors won't be happy with that.

The ideal outcome for eBay would be to rise to the challenge before it: PayPal is the most common online payment partly by virtue of its strengths, and partly by default. Now that a potential rival is on the scene, Dutta needs to work out some of the longstanding kinks that still make PayPal too fussy and unintuitive for its users to truly embrace.

If eBay can pull that off, then investors may look back on this dark hour and see it was in fact a rare opportunity to buy the stock on the cheap.