eBay Shares Fall as It Lays Out its PayPal-Free Future

NEW YORK (TheStreet) -- eBay (EBAY)'s plans to prove to investors it can succeed without PayPal got off to a rough start Monday as the company announced some worrisome sales guidance. 

eBay forecasts its main Marketplaces business will see just 0%-5% revenue growth in both 2015 and 2016. This was below the Street's forecast of 5.2% growth in 2015, according to Piper Jaffray analyst Gene Munster. 

The company attributed the weak growth to a change in Google's (GOOGL) algorithm that hurt eBay's visibility in search results, as well as a hacking incident that forced a total password reset for buyers. Share were recently down 3.2%. 

eBay's first-quarter earnings were largely propped up by PayPal, with PayPal revenue surpassing Marketplaces revenue for the first time ever. Gross merchandise volume for eBay's Marketplace business declined 2%. The last time Marketplace sales fell was in the third quarter of 2009, after the financial crisis.

On top of that, eBay is growing much more slowly than the e-commerce industry as a whole. In April, eBay's same-store sales grew 5.8%, according to ChannelAdvisor, compared to a rate of 15% for the e-commerce industry overall, according to ComScore results. Amazon  (AMZN) same-store sales rose 22.6% for the month, according to ChannelAdvisor

These numbers pose some looming questions for eBay as it prepares to sever its ties with PayPal in the third quarter.

"It's going to be an uphill battle for them," Piper Jaffray's Munster said. "For every one step forward for eBay, Amazon's doing three steps. Bottom line is Marketplace is currently growing below e-commerce. They attribute that to the Google algorithm change. We think that played some part, but a bigger part has been natural, related to their brand and indexing."

In its investor presentation, eBay said it plans to improve traffic and user acquisition by focusing on core customers; adding value to its Marketplace in terms of selection, seller tools, and data-driven merchandising; creating a strong, stable, and secure commerce platform; and providing engaging product and brand experiences.

"We have a significant transformation ahead of us as we continue to evolve eBay to be the best place for both buyers and sellers," Devin Wenig, eBay CEO-designee wrote in a blog post following the company's most recent earnings.

The question is whether such a major transformation is possible.

"The eBay Marketplaces experience is still materially below that of Amazon, and that's really what they've been invested in and that's what they're going to continue to invest in to onboard people easier, get people to find what they need faster, no hassle, no haggling, and get their product a la Amazon within two to three days," Cantor Fitzgerald analyst Youssef Squali said. "But it's going to take them some time."

While eBay has famously been known for its auctions, those now make up only 20% of gross merchandise volume, when it used to account for half of GMV. "It's a melting ice cube," Squali said. "How do they stem the melting, how do they plateau it...so it doesn't take away from growth in fixed price?"

While eBay's auction business is struggling, it's constantly playing catchup with Amazon when it comes to fixed price e-commerce.

Even if Amazon maintains its dominance in e-commerce, though, there's still room for eBay to compete.

"At the end of the day, Amazon is not going to own 100% of the e-commerce market," said Squali. "Amazon may end up owning 25% of the market, which would make it a gigantic player, but you have the majority of the market made up by a whole slew of smaller players, and I think eBay will be one of the smaller players. And you can have a very successful business model being the number 2 or 3." 

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