eBay Earnings: All Quiet on the Russian Front?

NEW YORK (TheStreet) - If payments giant Visa (V) tumbled after saying economic sanctions against Russia could shave "several pennies" from the company's 2014 earnings, investors in eBay (EBAY) should brace for a similarly bleak outlook from the company's fast-growing PayPal payments division.

eBay's Russian Front Underscores PayPal Growth Strategy 

With little fanfare, eBay has pinned much of its international growth on a 2014 expansion of PayPal's presence in Russia. That Russian expansion, while initially pitched as evidence of why its eBay's Marketplace division and its PayPal unit work well together, may present a drag on near-term earnings results and guidance.

In March, amid pressure from activist Carl Icahn to split PayPal from eBay's wider e-commerce operation, CFO Robert H. Swan sought to explain the synergy between eBay and PayPal using an ambitious Russian expansion as an example. "When we enter a market, as a company, we lead with eBay and we pull PayPal through," Swan said at a Morgan Stanley technology conference in March.

That strategy means eBay's Marketplace business can build scale in a new market before the company invests heavily in extending PayPal's reach. Once the scale is there, PayPal is then introduced on Marketplace and the payment's platform is then expected to grow outwards, driving a positive feedback loop of activity across eBay's businesses.

After years of an eBay Marketplace presence in Russia and the ability to conduct PayPal transactions in U.S. dollars, the company won a license to introduce ruble-denominated transactions to PayPal in March 2013. Without the ability to conduct ruble-denominated payments, PayPal processed $1 billion in PayPal transactions in 2012.

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