Argus Research has reiterated a Buy rating for eBay Inc. (NASDAQ: EBAY), raising the target price to $70 from $63, citing the company’s strategic initiatives to boost user engagement and revenue. eBay’s recent advancements in generative AI and focus on high-value categories such as collectibles and luxury goods are expected to drive growth. The company’s earnings per share (EPS) for 2024 and 2025 are forecasted at $4.84 and $5.24, respectively. Despite competition from Amazon and others, eBay’s robust focus on product innovation and user-centric strategies positions it as an attractive option for investors.

Third-Quarter Earnings and Revenue Performance

EPS and Revenue Growth
eBay reported third-quarter 2024 adjusted EPS of $1.19, a 15.5% increase year-over-year, while revenue rose by 3% to $2.58 billion. Both EPS and revenue exceeded Argus’s guidance, with gross merchandise volume (GMV) up by 2% to $18.3 billion. Notably, eBay’s focus categories, which include high-value segments like collectibles and luxury goods, experienced a 5% GMV growth, underscoring the company’s strategic shift toward profitable niches.

Operating Margin Expansion
Operating efficiency improved, with eBay’s non-GAAP operating margin rising to 27.2%, driven by cost discipline and operational efficiencies. These efficiencies partially offset investments in marketing and technology, including new AI-driven tools to enhance the buying and selling experience.

Target Price and Valuation

Attractive Valuation with Upside Potential
Argus has set a new target price of $70 for eBay, representing a P/E ratio of 13x based on the 2025 EPS estimate. This is below the peer group average of 17.4, offering an attractive valuation for investors. eBay’s forward EV/EBITDA multiple of 9.6 is also competitive, trading 9% below the peer average, reflecting both growth potential and a margin of safety.

Strategic Focus on Key Product Categories

High-Value Categories and Enthusiast Buyers
eBay’s strategy to emphasize high-value product categories, such as luxury items, collectibles, refurbished goods, and auto parts, has positioned the platform to capture enthusiast buyers and generate higher-margin transactions. This focus aligns with eBay’s move away from broad competition with Amazon, creating a niche where it can dominate and attract a loyal customer base.

Acquisitions Supporting Category Expansion
eBay’s acquisition of TCGplayer (a trading card marketplace) and myFitment (auto parts accessory solutions) reflects its strategy to deepen expertise in key segments. These additions not only broaden eBay’s offerings but also strengthen its value proposition to customers and sellers within these categories.

Technological Innovation Driving User Engagement

Generative AI Tools Enhancing the Seller and Buyer Experience
Leveraging generative AI models, eBay has introduced new seller tools and features aimed at creating a seamless shopping experience. Initiatives include the proprietary LiLiuM AI model and “shop the look” functionality on iOS, which tailors clothing ensemble suggestions based on user preferences. These AI enhancements are expected to drive increased engagement, making eBay a preferred platform for both buyers and high-value sellers.

Expanded Advertising and Payment Solutions
eBay continues to develop its advertising and fintech services to boost revenue. The “Promoted Listings” feature allows sellers to increase sales velocity, while new payment options, including local currency and seller financing, provide flexibility. These tools support eBay’s goal of providing a holistic marketplace experience that addresses diverse user needs.

Financial Strength and Shareholder Returns

Strong Balance Sheet and Free Cash Flow
Argus rates eBay’s financial strength as High, with cash reserves of $4.9 billion and manageable debt. eBay generated $1.4 billion in free cash flow over the past year, demonstrating its capacity to sustain growth and innovation. The low debt/capital ratio (56.3%) and high return on equity (43%) reflect solid financial health.

Dividend and Share Repurchases
eBay’s annual dividend of $1.08 per share, yielding approximately 1.75%, complements the company’s aggressive stock repurchase program. In the first nine months of 2024, eBay repurchased $2.25 billion of its shares, signaling management’s commitment to enhancing shareholder value.

Competitive Positioning and Risks

Competition and Evolving E-Commerce Landscape
eBay faces intense competition from industry giants like Amazon and niche platforms like Etsy. However, eBay’s focus on specific high-value categories, combined with enhanced seller tools, differentiates it within the e-commerce space. Nevertheless, discretionary spending pressures in key markets, such as the U.K. and Germany, pose risks to eBay’s growth.

Conclusion and Investor Recommendation
Argus’s Buy rating and $70 target price underscore eBay’s strategic focus on high-value categories, robust financials, and dedication to shareholder returns. The company’s unique positioning within the e-commerce sector, combined with ongoing AI-driven innovation, makes it an appealing investment opportunity for long-term growth.