AI Advancements And Partnerships With Klarna And OpenAI Will Expand Marketplace Reach

Key Takeaways

• eBay's innovations in AI and strategic investments in niche categories are expected to boost productivity, customer engagement, and revenue growth.
  
• Acquisitions and partnerships, such as with Caramel and Klarna, aim to strengthen market positions and enhance customer conversion rates, driving revenue and EPS growth.
  
• Changes in shipping policies, macroeconomic challenges, and increased competition threaten eBay's revenue, growth, and market share.

Catalysts

Operates marketplace platforms that connect buyers and sellers in the United States, the United Kingdom, China, Germany, and internationally.

• eBay's transformative initiatives, such as enhancements in their core AI platform, have enabled the introduction of proprietary large language models and AI-powered tools like magical listing and automated social media posting, which are expected to boost both productivity and customer engagement. These innovations are anticipated to drive future revenue growth by attracting more sellers and enhancing buyer experiences.
  
• Strategic investments in focused categories, like trading cards and motor parts, have shown significant GMV growth. Expanding these categories, coupled with innovations like magical bulk listing and authentication services, are expected to continue to drive GMV and revenue expansion in future fiscal periods.
  
• The acquisition of Caramel and its integration into eBay's vehicle purchasing process is expected to strengthen eBay's position in the auto parts and vehicle sales markets. This innovation is poised to drive revenue growth and create synergies across the eBay platform, leveraging eBay's large audience of auto enthusiasts and enhancing trust in vehicle transactions.
  
• The introduction of new advertising solutions and partnerships, such as the collaboration with Klarna for buy now, pay later options, are positioned to enhance customer conversion rates and unlock higher average order values, which should contribute positively to net revenue and EPS growth.
  
• eBay's entry into partnerships with platforms like Facebook Marketplace and OpenAI's Operator aims to broaden marketplace exposure, accessing new buyer audiences and potentially increasing GMV. This strategic move is anticipated to positively impact top-line revenue by introducing eBay's unique inventory to larger customer bases internationally.

eBay Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming eBay's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.3% today to 18.4% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $4.65) by about March 2028, up from $2.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.4 billion in earnings, and the most bearish expecting $1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, down from 16.6x today. This future PE is lower than the current PE for the US Multiline Retail industry at 16.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

eBay Future Earnings Per Share Growth

Risks

• eBay’s exposure to potential changes in de minimis shipping policies and U.S. tariffs may impact the cost structure and demand for goods from China, which could affect revenue and profitability.
  
• The macroeconomic challenges in the U.K. and Germany, including lower consumer confidence and GDP growth, pose risks to eBay's international GMV and revenue growth.
  
• The success of new initiatives, such as the overhaul of the C2C experience in the U.K., carries execution risk. If these changes do not yield the expected benefits, it could negatively impact revenue and growth.
  
• Competition in the e-commerce space, particularly with marketplaces like Amazon and single-product platforms driven by Shopify, may limit eBay’s market share growth and revenue potential.
  
• Changes in customer behavior, especially with the rise of AI-driven shopping agents, present a risk if eBay does not adapt effectively, potentially impacting seller engagement and revenue streams.

Valuation

• The analysts have a consensus price target of $65.243 for eBay based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $49.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.3 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $70.51, the analyst price target of $65.24 is 8.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.