eBay: Does it have any answers for Amazon?

EBay is expected to deliver a better-than-expected fourth quarter, but the elephant in the room will be the same one that has been around for the last two years or so: Amazon.

Does eBay have an answer for Amazon? The company is expected to report fourth quarter earnings of 40 cents a share on revenue of $2.29 billion. Wall Street analysts are upbeat about eBay. Listings are tracking at the high end of expectations and Wall Street's operating margin targets, roughly 29 percent, appear to be beatable. That operating margin target is down from 31 percent a year ago.

Simply put, eBay has hurdles that it should be able to clear in the fourth quarter.

But then what?

As most shoppers know, eBay is being squeezed hard by Amazon. It also faces competition from Craigslist. Can eBay deliver sustainable revenue growth? Probably not.

Here's the eBay challenge, according to Piper Jaffray analyst Gene Munster. EBay made its name in an auction model that's out of favor with shoppers. Indeed, eBay's "buy it now" feature is gaining momentum. The problem: Buy it now is what you can do on Amazon and other e-commerce companies everyday.

Given that fact, it's not surprising that eBay isn't viewed as the first pick of online shoppers. Here are the results of Munster's survey of 332 online shoppers in early January and the trending data:

The bottom line: Auctions are out. You can expect eBay to spend a lot of time talking about non-auction revenue such as PayPal. But eBay is still tethered to auctions.

Benchmark analyst Frederick Moran highlights the eBay conundrum:

eBay’s shift away from its core auction platform toward a more traditional fixed-priced platform has helped stabilize revenue declines at the cost of slight margin compression. However, an increasing emphasis on the fixed price format could transform eBay into a more traditional commerce site, thus lessening its competitive differentiation.

In other words, the more eBay tweaks its model the more it competes directly against Amazon---and a bunch of other e-commerce players. Can eBay navigate that transition?

Jeffries analyst Youssef Squali outlines the mixed bag that is eBay:

• Global listings for eBay are estimated to be up 36 percent in the fourth quarter compared to a year ago;
• The buyer experience for eBay's marketplace is improving;
• Fixed rate purchases are becoming a larger share of sales;
• PayPal is a gem;
• But the outlook for 2010 is expected to be cautious since that marketplaces turnaround, the economy and unemployment are all wild cards.

More Wall Street estimates:

• 2009 estimates: Earnings of $1.54 a share on revenue of $8.65 billion.
• Fourth quarter gross margins of 71.88 percent and 72.15 percent for 2009.
• First quarter targets: Earnings of 39 cents a share on revenue of $2.15 billion.
• 2010 targets: Earnings of $1.60 a share on revenue of $9.03 billion.