eBay's Q2 Numbers Were Strong as the E-Commerce Platform Leaned Into AI. But Is the Stock a Buy?

Investors liked some of what they heard with eBay 's (NASDAQ: EBAY) latest quarterly earnings release. A few of the e-commerce veteran's numbers were mildly encouraging -- at least, enough to help the stock outperform the S&P 500 index since they were published at the end of July.

One big challenge is that the company is hardly the only e-commerce operator battling to earn your consumer dollar. Will it do well in that endless fight? Let's explore where eBay is going from here -- and whether it's worthy of inclusion in your stock portfolio.

Q2 revenue inched up, the bottom line did better

In its second quarter, eBay did a decent job of squeezing out bottom-line growth from sales that only inched higher.

On a year-over-year basis, both revenue and gross merchandise volume (GMV; the total value of all products sold via the site) both rose by 1%, to a respective $2.6 billion and $18.4 billion. In the earnings release, eBay mentioned "an uneven discretionary demand environment in our major markets," seemingly to explain those sluggish growth figures.

A more inspiring story was told on the bottom line, where non-GAAP (adjusted) net income bounced 8% higher to $602 million, or $1.18 per share. Although that revenue figure didn't move much higher, it was sufficient to beat the consensus analyst estimate of $2.53 billion. Ditto for adjusted net income, for which those prognosticators were collectively modeling $1.13.

During the quarter, eBay benefited from a focus on certain product categories. It's currently pushing goods in such disparate areas as auto parts and collectibles. That's an offbeat strategy but probably a necessary one. That's because the e-commerce space is not only dominated by monster general retailer Amazon; it's crowded with many smaller operators nipping at its heels.

Real results from artificial means

Looking ahead, eBay is surely hoping for artificial intelligence (AI) to be the secret sauce powering its results higher. It's labored for years to weave AI functionalities into its site, with one familiar example being the auto-listing feature for sellers. This handles one of the more monotonous tasks for such users, providing a concise and cleanly written description of the item that will (hopefully) help it get sold.

A more recently introduced feature is an AI-powered background enhancement tool for product photos. It's helpful because, after all, we humans are visual creatures and we respond to pretty pictures. Although the results aren't quite what the company hypes as "professional grade imagery," they are an improvement and they do make the goods look more attractive.

Management does not break out its costs for developing, launching, and maintaining those AI functionalities. Yet a glimpse at the income statement for the quarter shows that the company's product development expenses have actually -- and admirably -- come down across the past year, to $379 million from $392 million. That matches the trajectory of overall operating expenses, which saw a slight reduction over that span to help lift the bottom line.

Good but not great

As indicated by eBay's second-quarter performance, the company's well-established web portal continues to attract plenty of customers from around the world. This hardly means the stock is an automatic buy, however. As with any other title worthy of consideration, future potential and current valuations matter more than familiarity and audience.

Analysts tracking the company are expecting more of that sluggish top-line/OK bottom-line growth dynamic. Collectively, they're modeling a dip in revenue for the full year compared to 2023; this should come in at just over $9.4 billion from the previous frame's $10.1 billion, rising to $9.75 billion in 2025. Meanwhile, per-share profitability looks set to rise 4% in 2024 to $4.40 and by 7% the following year to $4.71.

eBay is a rather mature business for an e-commerce operator, so those growth numbers aren't very hot. That's one reason its forward P/E is relatively modest, at just over 11 (compare that to popular Amazon's 35-plus). No one's expecting eBay's fundamentals to leap sharply higher anytime soon; rather, the company is a familiar, steady business that, to be honest, is a bit on the unexciting side these days.

For me, very little currently stands out about eBay. Perhaps the company will find a way to harness AI to develop a hot, whiz-bang set of functionalities that draws millions of new users and keeps them transacting on the site -- but so far, the technology has only delivered features that make user lives slightly easier. None of these are serious threats to Amazon or rival e-commerce players, and I don't see that situation changing in the coming years.

Given all that, in my view, eBay stock isn't compelling enough to be a buy just now.

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