For the better part of 2014, shares of eBay (NASDAQ:EBAY) have traded lower behind fears of increased competition to its valuable PayPal segment from the likes of Facebook (NASDAQ:FB) and others. However, given Facebook's news last week, that fear might spread into eBay's Marketplace business, affecting it more than peers like Amazon (NASDAQ:AMZN). Nonetheless, could the fear surrounding eBay become full-blown panic?

A segment that remains challenged
eBay's 12% total revenue growth in the second quarter was better than many investors had anticipated. While eBay's Marketplace grew just 9%, PayPal, again, carried the fundamental load with revenue growth of 20%, as it quickly got closer to accounting for half of the company's total business.

The company's Marketplace segment continues to face increased competition from the increase of e-commerce channels in brick-and-mortar retailers, along with Amazon's continued success. Reportedly, same store sales of key eBay sellers have remained fickle throughout 2014. Meanwhile, sellers on Amazon have consistently experienced growth this year, with June seeing a whopping 34.4% increase.

Marketplace is the problem, but PayPal created the fear
Nonetheless, with Marketplace fading, PayPal remains eBay's one bright spot, which, unfortunately, is where fears surrounding the company exist. Investors fear the outcome of Facebook entering the payment processing space. For example, PayPal's 152 million active accounts is substantial, but nowhere near the presence that Facebook could bring with its 1.3 billion users.

Several months ago, news hit that Facebook had applied for a license to launch an electronic money service in Ireland, allowing consumers to store and transfer money, and make purchases. This created increased speculation surrounding other Facebook moves, such as hiring former PayPal chief David Marcus to head its messaging segment, suggesting that Facebook is seriously pursuing the payment processing industry.

Furthermore, the latest belief is that Facebook will launch a mobile payment-processing service, which is where Marcus comes into play, helping the company link applications like Messenger with a user's payment information. In retrospect, this might explain the company's willingness to pay nearly $20 billion for WhatsApp earlier this year.

The really bad news
If competing against Facebook wasn't bad enough for eBay, Facebook announced last week that it will be testing a "buy" button in an attempt to keep shoppers on it's site. This goes hand-in-hand with the company's payment-processing initiatives, not to mention, this is a brilliant move for Facebook in monetizing its incredibly successful advertising business and market-leading collection of small and large business profiles.

Specifically, Facebook has 30 million small business pages and more than one million advertisers. Facebook advertising dollars have soared, mainly because companies see value in its advertising. Facebook has an incredible amount of data derived from user profiles including the "like" button, which tells the social media giant what users want to see. As a result, the company claims that 89% of its advertising reaches the targeted audience, much better than the 38% average among other online advertising platforms.

The next step in driving ultimate value for Facebook's advertising is to allow businesses of all sizes to create revenue from the ad itself. Moreover, an advertiser can, theoretically, list items to buy, which are targeted via advertising, allowing users to simply buy with Facebook's payment-processing system already in place. With all things considered, this makes Facebook's advertising more valuable than ever, while consequently creating an enormous e-commerce platform targeted at interested buyers for small and large businesses.

What does this mean?
In the past, eBay has had very little competition to PayPal, but now a flurry of companies, including Facebook, are preparing to enter the space. While the exact monetization practices are unknown, if PayPal can generate more than $1.7 billion in second-quarter revenue with 152 million users, then theoretically, with the same business model and nearly 1.3 billion users, Facebook could create an even larger business. .

Not to mention, Facebook's presence in the business could force eBay to become more price-competitive, pressuring growth and margins. However, with eBay's Marketplace being home to many small sellers and businesses, news of Facebook's "buy" button, considering its significant small business presence, could be catastrophic for eBay. Albeit, Facebook's e-commerce initiatives are unlikely to be as bad for Amazon, as Facebook appears to be targeting small vendors, those most commonly found on eBay.

Amazon still has a $75 billion e-commerce business, along with a nice hedge in Amazon Web Services. This cloud business is reportedly worth $50 billion and is growing at 50% annually, meaning the company isn't totally reliant on e-commerce alone.

Foolish thoughts
With all things considered, Facebook's "buy" button and payment-processing initiative may have little effect on Amazon, but could be crippling for eBay. In many ways, Facebook is targeting eBay's entire business, and has the ecosystem and user base to cause significant problems, both for PayPal and Marketplace.


Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends, eBay, and Facebook. The Motley Fool owns shares of, 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.