News : New eBay will zero in on PayPal as growth slows

By Alexandria Sage

SAN JOSE, California (Reuters) - EBay Inc, criticized for lagging in a crowded and slowing e-commerce market, envisions a "remaking" of the company by galvanizing growth at its nascent PayPal payments system.

Chief Executive John Donahoe acknowledged at the company's annual analyst day that changes to eBay's slowing marketplaces business were overdue and pledged to accelerate the pace.

But analysts say the company signaled no dramatic changes beyond efforts to lure more sellers and buyers onto its site.

By 2011, its marketplaces should see $5 billion to $7 billion revenue, eBay said, spurred by search, catalog and platform improvements. That compares with 2008's $5.6 billion.

"There is nothing new they gave us to make us feel more positive," about the marketplaces business, Collins Stewart analyst Sandeep Aggarwal said.

EBay pushed its fast-growing PayPal unit into the spotlight on Wednesday, with President Scott Thompson the first to address analysts after Donahoe, saying PayPal expects the online payments arm to double its business within two years.

Thompson unveiled a deal with Research in Motion for PayPal to be the exclusive payments system for a growing family of applications on the popular Blackberry Smartphone.

And eBay will open its PayPal platform to developers, allowing them to craft applications in the hope that they will expand its adoption around the world.

Globally, total payment volume is expected to reach $100 billion to $120 billion by 2011, Thompson said. PayPal now commands a 79 percent market share in North America, but just 41 percent internationally, the company said.

WITHERING MARGINS -- FOR NOW

PayPal margins are expected to decline this year and next due to the integration of online payments company Bill Me Later, which the company acquired in 2008. Longer term, Thompson said he expected them to exceed 18 percent to 20 percent.

"We believe it (PayPal) will be bigger than marketplaces because its target audience is all of e-commerce," Donahoe told analysts adding that "the core eBay business must change and it will."

EBay shares jumped 5.5 percent, outpacing a 5 percent rally in online retail rival Amazon.com Inc.

The Web auctions leader, which also operates Web-based telephone company Skype, is trying to convince Wall Street it remains a vibrant player.

Investors have been questioning how the San Jose-based company -- first known as a place where collectibles from Barbie dolls to quilts could be bought and sold online -- can boost its performance in a deepening recession and fend off Amazon, which has remained relatively resilient.

Donahoe warned that growth at marketplaces -- its main profit and revenue driver that sells everything from cars to appliances -- would slow in 2009, be flat with the e-commerce market in 2010, but grow faster than that market in 2011.

EBay executives, addressing Wall Street's criticism, admitted the firm's past reluctance to change and its subsequent loss of market share.

"We were too slow in our approach to change. We were letting everyone into the marketplace," Marketplaces chief Lorrie Norrington said. "We have to do more and we have to do it faster," she added.

But analysts said they heard few specifics.

"The question is: will those changes make the experience competitive with other online retailers like Amazon or Zappos who aren't standing still. That's hard to say," Pacific Crest analyst Steve Weinstein said.

In January, eBay issued a disappointing first-quarter forecast and would not provide a view for 2009, raising fears it would not soon see improvement in auctions.

Donahoe vowed to galvanize his company.

"The eBay you knew is not the eBay we are, or the eBay we will become," Donate said.

EBay's shares have lost two-thirds of their value since last year. They now trade at about seven times estimated 2009 earnings, at a deep discount to Amazon's 42 times.

In past years, eBay bought classified ads businesses around the world to diversify from auctions, while analysts and investors have pushed the company to spin off PayPal or Skype.

Donahoe said the company would make "the right decisions" to maximize the value of Skype, which the company said was adding 350,000 users per day around the world.

(Editing by Edwin Chan, Andre Grenon, Leslie Gevirtz)