• by Joe Mandese  @mp_joemandese, October 16, 2008

In an equities research report sent to investors this morning, JPMorgan analyst Imran Khan downgraded eBay shares to "neutral" from "overweight" and cut eBay's earnings estimates for the second time this week. The report, entitled "eBay Inc.: Fall Of A Franchise," cites a number of critical issues that are dragging down results for the venerable online marketplace, including declines in the conversion rate despite gains in the number of listings.

"We believe eBay's biggest challenge is an inferior technology platform, which is making it difficult for the company to compete with other e-commerce platforms, such as Amazon's," Khan wrote. "In our view, the company has yet to deliver meaningful improvements in search functionality or user experience, which we believe is evident in the inverse relationship between the listing growth rate and conversion rate. We think that if eBay fails to improve the user experience, it will inhibit future growth even when the economy recovers.

The report also cites a slowdown in the rate of growth of eBay's "non-core" assets, including revenues at online escrow and payment service PayPal, as well as weakness in some of eBay's other e-commerce related businesses, including StubHub and shopping.com.

"We believe margins will be difficult to maintain given declining revenue growth and likely mix shift toward lower margin businesses, including PayPal and Skype, and increased investment in sales and marketing for the Marketplaces business likely," Khan projected.