On Thursday it was reported that eBay Inc (NASDAQ:EBAY) may be considering spinning off PayPal. Now a research report from analysts at Indigo Equity Research suggests that PayPal drives eBay’s value. So if eBay does spin off PayPal, the question now is what the MarketPlace segment is worth, which may not be much, depending on how you look at it.

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Protecting PayPal from eBay MarketPlace’s fate

eBay’s last earnings report showed that the MarketPlace is still struggling as PayPal increasingly becomes the main driver of the overall company’s report. The results demonstrate that a separation would indeed protect PayPal from the sinking ship that is the MarketPlace, and investors seem to agree that a separation is best. Shares of eBay stock jumped by more than 4% on Thursday after the report, which cited unnamed sources.

In a research note dated Aug. 21, 2014, Indigo analyst N. Landell-Mills noted that PayPal’s revenues climbed 20%, and its EBIT rose 28% in the second quarter. PayPal’s margins edged upward as well, hitting 24.5% in the quarter.

eBay’s MarketPlace a sinking ship

However, revenue from eBay’s MarketPlaces segment increased only 9%, while EBITDA remained flat and margins slumped to 36.3%, a 3.4% decline. Of course there were some extenuating circumstances affecting MarketPlaces during the quarter, as hackers attacked the segment and stole passwords and customer information. Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s algorithm changes certainly didn’t help either.

Landell-Mills notes that that these problems are going to take some time to fix, and eBay reduced the high end of its full year guidance a bit. The online auction company maintained its projection for about 10% growth in non-GAAP earnings per share. The Indigo analyst thinks eBay is being optimistic in this projection, however.

But on the flip side of the coin, estimates from eBay management earlier this year indicate that the MarketPlace makes up approximately one-third of PayPal’s revenue and more than 50% of its profits. Management also said that eBay contributes over 30% of PayPal’s new customers, so MarketPlaces could still stand a chance on its own, although its fate would remain heavily tied with PayPal’s fate, even if there is a spinoff.

eBay stock to be hit by correction

Because of all the problems, the analyst noted that eBay’s stock price has stagnated as the company’s earnings per share growth slowed. Also valuation multiples are weighing on the company’s share price. Landell-Mills expects both of these numbers to keep declining this year and next because of slowing growth in revenue and EBIT margins.

In addition, the analyst believes that economic growth in some of eBay’s key markets will be weaker than expected. And he believes that the broader equity market as a whole is “significantly overvalued” because of low interest rates and money printing. As a result, he expects a “significant” correction in the market, which of course would not only affect eBay but other stocks as well.

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