eBay's ultimate growth rate may not support its current stock price, according to a research report published by RBC Capital Markets yesterday. RBC analyst George F. Sutton downgraded eBay's rating to Underperform and lowered the price target to $45, despite his expectations that eBay's third quarter numbers will exceed his previous estimates.

The research note raised three issues of concern in lowering its rating. The firm has been actively speaking with large sellers of corporate inventories, liquidations and practicals, and "what these sellers have found, particularly recently, is that eBay does not operate well as a vehicle to sell large volumes of the same product." This is a problem, the report stated, "when investors are pricing in expectations that eBay will be a major retail alternative for a broad range of products, when sellers are telling us the demand may not yet be there."

Sutton also cited "very limited incremental traffic" being generated through eBay Stores, the auction site's fixed-price offering, and concerns over eBay's forthcoming acquisition of online payment firm PayPal.

"I am not sure which corporations RBC talked to," said Scot Wingo, CEO and President of ChannelAdvisor, "but our customers are very happy selling their products on eBay." ChannelAdvisor provides auction management services for auction sellers, and held a strategy summit for corporate sellers in North Carolina last week. ChannelAdvisor customers include IBM, Kodak, Motorola, who are successfully moving thousands of products on eBay, according to Wingo. He noted that ChannelAdvisor customers often start selling on eBay and expand into other marketplaces, such as uBid, Amazon and AOL, to gain further exposure online.

In reporting on eBay's acquisition of PayPal, which is pending PayPal stockholder approval on Thursday, the RBC Capital Markets research note stated that class action lawsuits and a patent infringement suit add risks that are difficult to quantify. In addition, it said it has heard skepticism towards an eBay-owned PayPal, citing PayPal's current independence as a key strength.

"eBay has shut down many a large seller when they have exceeded Billpoint limit levels, impacting their livelihood," the report stated. Billpoint is eBay's own payment service that will be phased out after the acquisition of PayPal.

However, an AuctionBytes report published in March showed many auction-management services do not offer enterprise customers the choice of using Billpoint in their auctions. It appears many corporate customers prefer to accept credit card payments only.

While RBC lowered its price target from $70 to $45, it said, "we are big believers in the eBay business model and believe it will continue to engineer attractive growth rates and increasingly attractive profit margins."' RBC expects eBay growth to slow to 25% over the next 3 years from its previous 45% growth rate outlook.

Other research firms were not so quick to downgrade eBay's stock. "We would be aggressive buyers of eBay at $50 or below," said Scott Devitt, an associate analyst at Legg Mason Equity Research. "We were never a huge believer in Enterprises selling items one at a time on eBay. However, we do believe the potential growth of the powerselling business will generate the growth eBay needs to reach its internal targets."

eBay shares closed at $52.81 Monday, down 4.69.