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Yesterday, Wall Street was rattled by the debut of DeepSeek, a Chinese artificial intelligence (AI) startup, which triggered a major selloff in tech stocks. Investors grew concerned that the AI bubble might have finally burst. DeepSeek’s success appears tied to its claim of developing an AI model with performance comparable to U.S. tech giants like Meta (META) and OpenAI, but at a significantly lower cost.
This cost efficiency has raised concerns among investors, who are now questioning the high premiums paid for shares of U.S. tech companies. JPMorgan noted that “DeepSeek’s highly efficient and lower resource-intensive AI model” has ignited discussions about the potential overvaluation of the AI investment cycle.
However, the road hasn’t been smooth for the startup. Later on Monday, DeepSeek temporarily paused services due to a cyberattack, highlighting the challenges the new company faces in this highly competitive space.
Despite these concerns, many analysts view this as a temporary panic. Cantor Fitzgerald has dismissed worries about DeepSeek, interpreting the upstart’s model as evidence that increasing computing power will remain critical as AI innovation accelerates.
Meanwhile, e-commerce giant eBay (EBAY) has just announced a key partnership with OpenAI to test its AI capabilities. As one of the first companies to collaborate on OpenAI’s research preview of the AI agent “Operator,” eBay is shaping the future of agent-driven e-commerce while prioritizing customer safety and benefits.
Now, the question arises: Is eBay worth considering after this strategic deal? Let’s delve deeper and analyze the stock more closely to find the answer.
E-Commerce Stock Outperforms the Market
With a market cap of $32 billion, eBay (EBAY) operates a global online marketplace, connecting millions of buyers and sellers across 190 markets. The platform supports both auction-style and fixed-price sales, offering a diverse range of products.
Over the past 52 weeks, eBay’s stock has outperformed the broader market, gaining 55%, thanks to its strategic partnerships with tech giants like Meta. This collaboration, which allows eBay listings to appear on Facebook Marketplace, has significantly boosted investor confidence and potentially expanded eBay’s reach to over 1 billion monthly users. Analysts view this collaboration as a major growth opportunity for both eBay and its sellers.
Additionally, eBay is actively repurchasing shares and increasing dividends, signaling a commitment to returning value to shareholders. Currently, the e-commerce giant pays a quarterly dividend of $0.27, yielding 1.67% at current levels. Its payout ratio of 27% suggests a sustainable dividend policy that balances returning income to investors while retaining enough capital to fund future growth and operations.
eBay Partners with OpenAI
On Jan. 23, eBay announced a collaboration with OpenAI, backed by Microsoft (MSFT), to integrate its artificial intelligence agent, “Operator,” into its platform. This AI tool is designed to assist users with shopping tasks, representing a significant step forward in e-commerce innovation.
Following the announcement, eBay’s shares popped up as investors anticipated the potential benefits of the technology. “Operator” simplifies the shopping experience through personalized recommendations, real-time price comparisons, and optimized search functionalities, enhancing customer engagement and satisfaction.
The collaboration with OpenAI will make core business operations more efficient while cutting costs as well as improving both inventory management and customer service capabilities. This technological advancement supports eBay’s efforts to transform customer shopping experiences while building broader market footholds and functional supremacy within the dynamic digital shopping realm.
eBay Reports Mixed Q3 Earnings
On Oct. 30, eBay shares dropped 9% in extended trading after its third-quarter earnings report. While the company exceeded expectations on revenue and earnings, weaker-than-expected guidance for the upcoming quarter weighed on investor sentiment.
For Q3 2024, eBay reported $2.57 billion in revenue, up 3% year-over-year, and adjusted EPS of $1.29, beating analyst estimates. However, net income fell 51% year-over-year to $636 million, reflecting rising costs and profitability challenges.
eBay’s operating cash flow remained strong at $755 million, representing 24% of sales, enabling $750 million in share buybacks, but free cash flow declined to $646 million from $777 million last year, signaling potential liquidity pressures.
eBay continued its focus on innovation, launching AI-driven tools like a bulk listing assistant for trading cards and refining its platform with advanced large language models to enhance user interactions. These initiatives align with its strategy to leverage technology for growth in niche categories like collectible sneakers and refurbished luxury goods.
Looking ahead, eBay issued cautious guidance for Q4 2024, projecting revenue between $2.53 billion and $2.59 billion, reflecting a potential year-over-year decline of up to 1%. Adjusted EPS for the quarter is forecast to range from $1.17 to $1.22, with the top end meeting consensus estimates.
For the full year 2024, analysts anticipate revenue of $10.2 billion and EPS of $4.8, representing growth of 21% year-over-year.
Analyst’s Forecast and Valuation
Wall Street analysts are moderately bullish about eBay’s prospects, assigning a “Moderate Buy” rating. While the stock is currently trading above the mean price target of $64.50, its Street-high target of $75 suggests potential 12% upside from the current price.
eBay’s valuation has dropped significantly over the year, now trading at 13.8x forward earnings, representing a 22% discount compared to industry peers. It could be a good opportunity to scoop up eBay shares at a relative discount.
Through its alliance with OpenAI, eBay demonstrates a strong commitment to innovation by deploying artificial intelligence technologies to enhance consumer experiences and drive growth. The company’s focus on specialized product categories and operational excellence is well-positioned to thrive despite economic headwinds and intense competition from retail giants like Amazon (AMZN) and Walmart (WMT). Investors seeking a blend of stability, returns, and innovation should consider eBay an attractive investment option.
