Image source:  Steven Arnold via Wikimedia Commons

eBay (EBAY 0.58%) reports earnings Wednesday, Jan. 25. Investors need reassurance that management has the business on the right track for consistent, long-term growth. As mobile shopping continues to grow as a percentage of all retail sales, it's vitally important for eBay to demonstrate it can compete.

eBay is falling behind

In recent years, eBay has become more like a traditional retailer. More than 80% of eBay's sold items are listed as "new," which positions eBay in more direct competition with online juggernaut Amazon.

In this respect, investors will want to watch growth in eBay's gross merchandise volume (GMV), which shows the total value of closed transactions on eBay's marketplace platform and makes a better comparison with Amazon's revenue. Over the last four quarters, eBay's GMV has totaled $83.2 billion, representing growth of only 2% over 2015. For comparison, Amazon's revenue was $127.9 billion over the same period, which grew 27% year over year.

It looks worse for eBay when we look at mobile app penetration rate. A Business Insider report showed Amazon is dominating mobile shopping, with 50% of US online shoppers using Amazon's mobile app, while eBay's penetration of US shoppers with its own app has sunk below the 20% level. Moreover, Amazon's total unique visitors to its mobile app has tripled over the last few years, while eBay has remained flat.

It's not likely eBay will catch Amazon -- ever. But given the relatively low expectations built into eBay's stock valuation, eBay's business doesn't have to grow like Amazon's to be a solid investment. An improvement from the single-digit top line growth of recent years to at least 10% would be enough, and that's management's goal.

Management's strategy to catch up

Management has been on a mission to return the company back to double-digit growth by utilizing machine learning and artificial intelligence to better organize the mountains of data generated by the one billion live listings on eBay's marketplace platform. It will take a while for management to implement this process through the entire marketplace. So far, about half of the listings on eBay have been processed with structured data. As eBay processes more listings, it will gain better information about inventory listed for sale on eBay. In the end, this should bring more relevant search results to its users, enhance listings with added features, and more efficiently match buyers with what they are looking for.

Management also wants to invest more in the brand to differentiate eBay from competitors. The company has been shifting more marketing dollars toward TV advertising as opposed to short term sales promotions. It takes longer for advertising to translate to revenue growth compared to promoting limited time deals on eBay's marketplace -- sales promotions act as an adrenaline shot. But they're not effective in building long-term brand awareness.

The effect of shifting marketing spend from sales promotions toward brand building contributed to a deceleration in GMV growth in the last quarter. Since eBay earns revenue by charging a fee on GMV, this can also slow down revenue growth. Management seems to care more about building its brand than growing as fast as possible in the short term, however, which should be beneficial for investors in the long term.

These initiatives are a transition process for eBay to better compete over the long term. Ultimately, improving the marketplace experience should reaccelerate marketplace revenue. However, only time will tell how much additional growth these investments generate.

What to watch

It may be too early, but the upcoming fourth quarter earnings report -- the most important one for retail -- would be a great time for eBay to show investors it can pick up speed.

Wall Street likes to focus on earnings per share, which are expected to be in the range $0.52 to $0.54, but investors should watch growth in GMV and revenue. It may not come this quarter, but at some point investors need to see an uptick in top line growth as evidence that management's strategy is paying off. Management expects revenue between $2.36 billion to $2.41 billion, or growth between 4% and 6%.

A key driver of GMV and revenue growth is active buyers. Unless eBay is attracting more users over time, it will be difficult to grow the top line. Total active buyers reached 165 million in the last quarter, but growth has decelerated over the last year from 6% to 3%. eBay needs to reaccelerate active buyer growth if the business is going to reaccelerate top line growth in the coming year.