eBay Draws Battle Lines on Google, Craigslist

Investors await word on prospects of further competition with Google and Craigslist.
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eBay's

(EBAY) - Get Report

stock has spent the last quarter in a malaise.

The online auction giant's shares only rose about 2% during the past three months, closing Tuesday at $34.25. The broader

Nasdaq

index, meanwhile, picked up about 8% over the same time frame.

But eBay is showing new signs of fight that may begin to serve investors, who await the company's second-quarter earnings report after Wednesday's closing bell.

For the quarter, analysts surveyed by Thomson Financial/First Call expect earnings of 32 cents per share on revenue of $1.78 billion. For the year, analysts are forecasting earnings per share of $1.34 on revenue of $7.4 billion.

Earlier this month, eBay quietly

introduced Kijiji, an online classified ad service in the U.S.. The move is intended to allow eBay to take advantage of local commerce, an opportunity the company says is as big as its main auction business.

While Kijiji was already available outside the U.S., opening it up domestically will put the service in competition with

Craigslist

, the popular Web site in which eBay already owned a 25% stake.

Still, Craigslist is well known for its tendency to pass up money-making opportunities in favor of what it sees as providing a higher quality of customer service. eBay, tired of seeing the large market remain largely untapped, may have decided to move in more aggressively.

The past three months also saw the company

triumph in a skirmish with

Google

(GOOG) - Get Report

; eBay pulled its advertising from Google after the search giant made a heavy-handed move to poach users.

eBay billed the moratorium on Google ads as part of a routine test to determine what it could do to drive traffic to its site more cost-effectively. And while eBay did eventually start placing ads on Google again, it said it would buy fewer of them, since it had found other, more-efficient routes during the blackout.

eBay's tougher posture comes amid concerns that the company's core auction market has martured. More-abstract efforts to reignite growth, meanwhile, don't seem to have panned out. Buying the popular Internet telephony service Skype in 2005, for example, was supposed to help the auction marketplace by making it easier for buyers and sellers to communicate.

Skype continues to show impressive growth, but it's questionable whether the $2.6 billion that eBay shelled out in 2005 has really helped the company's bottom line enough to make the deal worth it.

Going after the local commerce market, on the other hand, offers the company a much more direct way of finding new growth. And many of the skills that eBay has honed over the years -- and not to mention the observational perch it has enjoyed thanks to its stake in Craigslist -- will give it a leg up over other big Internet companies in capturing the market.

The rebuff of Google, meanwhile, is likely driven by the search giant's push of its Checkout service. Launched in 2006 and promoted aggressively by Google, Checkout competes with eBay's PayPal payment service, which may be eBay's most vital offering at this stage.

Unlike the auction business, PayPal continues to grow at a healthy clip. And unlike Skype, it has the financial heft to make a meaningful difference to the bottom line.

Indeed, eBay CEO Meg Whitman recently took the unusual step of pointing out Checkout's low user-satisfaction rates during a televised interview. Slowing ad spending on Google may be part of eBay's preparation for a broader overall slowdown.

And while going against Google is something just about any other company would dread, eBay so for has shown a knack for getting the best of the search giant. eBay has stayed ahead through a mastery of the minutiae in the few businesses in which it competes.

If eBay can give signs Wednesday that it can replicate this success in new lines of business, investors could have reason to get on board.