More than half of eBay's (NASDAQ:EBAY) valuation and nearly all of its operating profit is tied to PayPal. But with the company having to contend with the three-headed monster of Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), and now (NASDAQ:AMZN), investors must think hard to determine if any investment value still exists.

A 2-headed monster
PayPal, eBay's payment-processing service, had annual revenue of $6.6 billion last year with growth of 19% over the year prior. The company creates this revenue by charging a fee when consumers use the service. eBay finished 2013 with 143 million users, up from 123 million in 2012.

Over the last three months, shares of eBay have lost 15%, with both Apple and Facebook preparing to enter the payment-processing industry. This topic has been covered in great detail, and the conclusion is that the pure size of the networks of Apple and Facebook is an enormous threat to eBay.

Apple has more than 600 million iOS users who already have their credit cards stored on iTunes, and Facebook has an unprecedented 1.3 billion global users. Apple and Facebook are both global companies that have a tight grasp on other business – Apple with applications and Facebook with site advertising. eBay investors rightfully remain fearful that both companies could create a service seamlessly and successfully.

With a true slap to the face of eBay, Facebook famously hired its PayPal chief, David Marcus, earlier this month. It does seem that Apple and Facebook are ready and willing to take the $6.6 billion in PayPal's annual revenue, and then some, which could add great value to both stocks.

Here comes the third head!
If eBay's problems weren't dire enough, here comes its biggest competitor,, with a payment-processing push that has already been launched. Earlier this month, Amazon launched a service that allows its 240 million users to use their stored credit card information to pay for services that range from music subscriptions on the site to monthly phone bills. Amazon then collects a fee for the service.

According to Reuters, third-party sales account for 40% of Amazon's total sales. This new service will build a deeper relationship with these vendors and create a payment-processing system for the companies. These vendors may use PayPal as of now, meaning the service could soon spark a price war, something always welcomes.

There's no doubt that is a faster-growing e-commerce company than eBay. However, the one area of strength that eBay investors could always hang their hat on is the company's operating margin of nearly 21% versus 1% for Amazon. As fate would have it, we might soon see these numbers grow more connected, as a price war forces eBay to lose profit from PayPal charges while Amazon benefits from the high-margin payment-processing business.

Foolish thoughts
Whether you believe PayPal will remain the superior service or not, investors have to see the severity of eBay's problem with new competition. Perhaps no metric is more telling than total users.



eBay's PayPal

143 million

Apple's iTunes

600 million-plus


1.28 billion


240 million

Simply put, eBay's ecosystem just doesn't compare to these noted companies, and unfortunately, much of its valuation is tied to the performance of PayPal. eBay investors should be very wary of this three-headed monster that's sneaking up fast, as the combined outcome could be a much lower stock price in the years ahead.

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Brian Nichols owns shares of Apple. The Motley Fool recommends, Apple, eBay, and Facebook. The Motley Fool owns shares of, Apple, eBay, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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