By Armando Duke

(AXcess News) Houston, TX - The world's No. 1 auction Website, Ebay is showing weakness in its core auction revenue with no indication of improving conversion rates, despite lower listings, according to Piper Jaffray analyst Safa Rashtchy.

"Investors should focus on user monetization and marketing efficiency metrics," writes Rashtchy.

The investment banking analyst noted that listings were down 8 to 11 percent over its estimate.

Rashtchy said that, "Ebay's revenue per auction has been $1.65, we expect it to be $1.73 in Q4; for a full recovery, revenue per auction should be above $1.82."

Rashtchy noted that revenue per active users, a true metric of Ebay's ability to monetize its user base, has been trending down since the first quarter of 2004 and is now at $12.01. Piper Jaffray says that Ebay would need to see $13 before a reversing trend would exist.

Usage growth by active users over the last three years has declined to 17 percent, the investment banking analyst noted. But Rashtchy points out that the cost of getting new users at Ebay has also gone through the roof in what he calls Marketing Efficiency. "Marketing spend per incremental active user has increased from $40 in the 2nd qtr of 2002 to $177 in the third," writes Rashtchy.

Ebay has seen a rise in fraud rates and its auction site's complexity to navigate as well. Personally, I never liked Ebay and its expansion plans were fine, when the net cost less to get users. Now, advertising rates are higher, acquisition costs per-user have gone way up and in Rashtchy's words, "Street expectations for 2007 and particularly 2008 are unrealistic and will likely come down."

Shares of Ebay Corp. (Nasdaq: EBAY) were down 25 cents, or nearly 0.9%, at $29.06 in midday trading Tuesday following Piper Jaffray's Internet analyst's comments.

Rashtchy rates Ebay "underperform" with a 2007 target price of $25.