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eBay Earnings, Major Policy Changes Ahead

As investors and analysts await financial figures for eBay's second quarter, sellers are likely to hear news Monday of policy changes that continue to reflect CEO John Donahoe's strategy of streamlining the buyer experience and redefining the auction marketplace as a traditional e-commerce site.

Chief among the expected announcements is a plan to replace eBay's (NASDAQ: EBAY) PowerSelling branding with a "top-rated" icon, though the PowerSeller program would continue for a year or so to be used as the criteria for rewarding sellers with fee discounts and search exposure, according to a source who has been briefed on the changes.

PowerSeller designation has been used at eBay to showcase high-volume sellers. eBay also special privileges to merchants who qualify as PowerSellers, such as listing discounts, increased exposure in search results and other marketing advantages.

It remains to be seen exactly how eBay will classify "top-rated" sellers as a subset of PowerSellers, but seems likely it will be done through a new formula for calculating "Detailed Seller Ratings" (DEFINE: DSR), which rate e-tailers on a scale from 1 to 5 on various criteria involved in the online purchasing experience, such as delivering goods on time.

If reports are true, the new formula for "top-rated" status would be based on meeting a minimum percentage of low DSR ratings a seller has over a certain time period. eBay would then give top-rated sellers a 20-percent discount on final value fees (FVF), compared to a 5-percent cut for traditional PowerSellers.

Top-rated sellers would also receive increased exposure in eBay search results, compared to PowerSellers and casual sellers.

Skip McGrath, veteran eBay PowerSeller and author of several eBay selling guides, said the "top-rated" plan makes sense for the seller community, though it won't benefit everyone.

"The problem with the PowerSeller program is it recognizes volume, but not necessarily quality," McGrath told InternetNews.com. "So yes, some sellers will be unhappy, and there will definitely be some pain points while they get it up and running, but in the long-term, if it brings more people back to the platform, that will be a plus for all sellers."

He adds that the "top-rated" program would benefit most online merchants with high DSRs -- 4.9 to 5 -- but may put those in certain categories at a disadvantage.

"I see this as being a problem for those who sell refurbished merchandise or used items," McGrath said. "No matter how many warnings you provide about the product being refurbished or 'as is,' and how excellent the customer service, they'll still get some negative feedbacks, so that could keep you out of the running for 'top-rated.'"

He also said the new seller category could help boost sales.

"I'm not sure the occasional buyers at eBay know what a PowerSeller is, or what significance that has, so it's probably good for the shoppers," McGrath said. "Lately, my sales have been, more and more, from people new to eBay, so that's good if we're attracting new buyers, and if they have a better experience, then it's good for the platform and good for sellers."

Other announcements expected from eBay next week include prohibiting sellers from making buyers pay for shipping insurance and a tool that will aid sellers in maximizing exposure in eBay's "Best Match" algorithm.

Until recently, eBay's search tool provided results based on when auctions were ending, but as more fixed-price items made their way to listings, eBay instituted "Best Match" as the default, which sorts items based on relevancy. The switch left many sellers at a loss as to how to optimize their listings for the new search format.

eBay did not return requests for comment by press time.

Earnings ahead

In the meantime, the pioneering online marketplace is set to report second-quarter earnings on Wednesday, and analysts appear to be cautiously optimistic.

"We believe the quarter is likely to fall in line with the company's top-line guidance of $1.85 billion to $2 billion, and at the high end of non-GAAP EPS guidance of $0.34 to 0.36 on management's ongoing cost measures," FBR Capital Markets said in a research note. "While we believe the company's efforts at improving the buyer experience may be having some impact, it is likely more a reflection of broader consumer spending trends."

For second quarter, FBR Capital expects eBay to modestly exceed estimates. Wall Street analysts are expecting the company to post $0.36 per share, according to Reuters Estimates.

"Based on our analysis, we are expecting eBay to report better-than-expected results," FBR Capital said. "We estimate revenues of $1.97B ... and pro forma EPS of $0.35."

Even with those optimistic results, eBay's revenues would be down about 10 percent from a year ago, while earnings per share would come in 18 percent lower. FBR Capital also expects eBay's marketplaces revenue to be down 21.7 percent, though it continues to see growth in other key areas, like PayPal -- up 10.8 percent -- and Skype, which could rise 22.2 percent.