eBay’s Q2 numbers were strong as the e-commerce platform turned to AI. But is the stock a buy?

Investors liked some of what they heard eBayhis (EBAY 1.04%) last quarterly earnings release. Some of the e-commerce veteran’s numbers were slightly encouraging — at least, enough to help the stock outperform S&P 500 index since they were published in late July.

A big challenge is that the company is not the only e-commerce operator struggling to earn your consumer dollar. Will he fare well in that endless battle? Let’s explore where eBay goes from here — and whether it’s worth including in your stock portfolio.

Q2 revenue increased, bottom line fared better

In its second quarter, eBay did a decent job of paring down profit growth from sales that rose just a notch.

Year over year, both revenue and gross merchandise volume (GMV; the total value of all products sold through the site) both rose 1% to $2.6 billion and 18, respectively. 4 billion dollars. In its earnings release, eBay cited “an uneven discretionary demand environment in our major markets,” apparently to explain those sluggish growth numbers.

A more inspiring story was told in the bottom line, where non-GAAP (adjusted) net income rose 8% more to $602 million, or $1.18 per share. While that revenue figure wasn’t up much, it was enough to beat the consensus analyst estimate of $2.53 billion. Ditto for adjusted net income, which those forecasters were collectively modeling at $1.13.

During the quarter, eBay benefited from a focus on certain product categories. It is currently pushing goods into such disparate areas as auto parts and collectibles. This is a novel strategy, but probably necessary. That’s because the e-commerce space isn’t just dominated by the monster general retailer Amazon; it is crowded with many smaller operators nipping at its heels.

Real results from artificial means

Looking ahead, eBay is surely hoping that artificial intelligence (AI) will be the secret sauce to boost its results. It has struggled for years to integrate AI functionality into its site, a familiar example being the auto-listing feature for sellers. This takes care of one of the more tedious tasks for such users, providing a concise and clean 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 useful because, after all, we humans are visual creatures and respond to beautiful images. While the results aren’t quite what the company hypes as “professional-quality images,” they’re an improvement and make the goods look more attractive.

Management does not break down its costs to develop, launch and maintain those AI functionalities. However, a look at the income statement for the quarter shows that the company’s spending on product development actually fell — and admirably — over the past year, to $379 million from $392 million. This is in line with the trajectory of total operating expenses, which saw a slight reduction during that period to help boost profits.

Good but not great

As eBay’s second-quarter performance indicates, the company’s well-established web portal continues to attract a large number of customers from around the world. This does not mean that the stock is an automatic buy, however. As with any title worth considering, future potential and current valuations matter more than familiarity and audience.

Analysts following the company expect more of that slow top-line growth/OK bottom-line dynamic. Collectively, they model a decline in revenue for the full year compared to 2023; this should come in at just over $9.4 billion from $10.1 billion in the previous frame, rising to $9.75 billion in 2025. Meanwhile, earnings per share look set to grow by 4% in 2024 to $4.40 and by 7% the following year to $4.71.

eBay is a pretty mature business for an e-commerce operator, so those growth numbers aren’t very hot. That’s one reason the P/E is relatively modest at just over 11 (compare to popular Amazon’s 35+). No one expects eBay’s fundamentals to skyrocket anytime soon; rather, the company is a familiar, stable business that, to be honest, is a little on the unexciting side these days.

To me, very little currently stands out about eBay. Maybe the company will find a way to harness artificial intelligence to develop a set of fantastic features that will attract millions of new users and keep them transacting on the site — but so far, the technology has only offered features that they make users’ lives. a little easier. None of these pose serious threats to Amazon or rival e-commerce players, and I don’t see that changing in the coming years.

With all that in mind, in my view, eBay stock isn’t compelling enough to be a buy right now.