E-COMMERCE

eBay Hopes AI Can Help It Get Ahead of The Competiton, But Competitors Have The Same Plans

From PR nightmares involving its former communications chief allegedly harassing writers to its consistent delivery of underwhelming quarters (including its most recent last week), eBay ($EBAY), the floundering e-commerce company just can’t get things right. Now, it’s pinning its hopes on artificial intelligence (AI) to turn things around… well, them and every other company.

Expectation vs. reality: Last month, Morgan Stanley dramatically shifted from being eBay's harshest critic to its biggest supporter, thanks to a strategic shift towards AI. Morgan Stanley's Nathan Feather believes “eBay is best-positioned to capture upside from generative AI in 2024” (BBG) — setting a target of $62 (~25% upside). eBay isn’t the only player leveraging AI features to woo investors — the industry is increasingly embracing AI for browsing, buying, and preventing fraud.

• In recent months, eBay and Etsy ($ETSY) introduced AI-powered personalization and recommendation features and tools to help sellers auto-generate captions.

• Shopify ($SHOP) and Amazon ($AMZN) are also rolling out AI features to assist sellers in quickly creating listings, although these features have yet to significantly impact sales.

Does AI dream of online shopping?

Probably not, but investors certainly dream of how AI can revolutionize online shopping — specifically, how much more sales it can help bring in. But eBay’s sales have been steadily declining since 2019 and its struggles can be summed in one question: When was the last time you started a purchase on eBay? Despite being founded within 14 months of each other in the ‘90s,  Amazon has far outpaced eBay:

• Amazon’s US retail e-commerce market share is expected to surpass 40% this year (far above eBay’s 3%), while Walmart ($WMT) continues to ramp up its e-commerce presence (and just about every other company).

• Over the past five years, $EBAY’s ~32% return has lagged behind Amazon and even the S&P 500, which rose 100% and 80%, respectively.

Can AI save eBay? As with other AI transformations, success is far from guaranteed. High initial investments and the challenge of monetizing AI features remain significant hurdles — but companies continue to push out AI features anyway, which often aren’t well thought out and are quickly deprioritized. It’s clear that AI alone won’t save eBay — or any other struggling company hoping to slap on some AI features and watch its stock soar.

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LARGECAP RECAP

👴🏻 Berkshire plans for life after Munger (and Buffett)

On Saturday, Berkshire Hathaway ($BRK) held its first annual shareholder meeting since the passing of Warren Buffett’s longtime business partner, Charlie Munger. Berkshire’s cash pile ballooned to a record $189B, earning $1.93B in interest in the first quarter. Despite selling nearly $20B in stock during the quarter, the company only bought $2.7B, highlighting its challenges in deploying its cash. Investors interpreted this as a bearish signal for the market.

• Berkshire reduced its stake in Apple ($AAPL) by 13% — the second quarter in a row that it’s sold, except Buffett has no plans to drop $AAPL “unless something really extraordinary happens” (WSJ).

• Instead, he says that it will remain Berkshire’s largest holding — calling it “even better” than American Express ($AXP) and Coca-Cola ($KO), his two other major positions.

There will come a day… When Buffett needs to pass the baton to his successors. He assured investors that a succession plan is in place and that Berkshire is in good hands with Greg Abel, responsible for allocating Berkshire’s cash, and Ajit Jain, who oversees Berkshire’s insurance business and played a crucial role in making Berkshire the largest US insurer.

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Markets & Economy

The US war machine needs magnets — which are in China: The US government is pouring money into domestic production of rare-earth magnets, which it needs to build drones, missiles, and fighter jets. But China currently dominates 92% of global production — an imbalance the US would like to change. [Read]

Higher cost of living pushes more families into food insecurity: March data shows over 10% of US adults live in households without enough food to eat over the past week. One culprit? Grocery prices, which have jumped by ~33.5% since the pandemic. [Read]

Record employment rates for US women: Today, 75.5% of working-age women are employed, partly due to remote work flexibility. However, return-to-office orders and soaring childcare costs may reverse this trend. [Read]

Business & Wealth

Households bear the cost of energy transition: Californian homes are footing bills for upgraded electrical grids — while cash-strapped European nations are raising carbon prices and phasing out green subsidies. Global efforts toward carbon neutrality is getting pricier, and households are fed up. [Read]

Apple’s research papers hint at its AI ambitions: Considered slow on AI, Apple’s extensive AI research shows they might be able to catch up by building a better Siri, integrating AI into Apple Health and Apple Music, as well as enhancing accessibility. [Read]

SEC targets Robinhood ($HOOD) over crypto business: Although crypto trading accounts for nearly a fifth of Robinhood’s activity, it’s a significant aspect of the platform. The SEC considers enforcing regulations on digital assets. [Read]

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DIGIT OF THE DAY

More Home Sellers Face Higher Taxes: 8% Hit by Capital Gains, Double 2017-2019 Average

There's no place like home — until the capital gains taxes come knocking. For many, soaring property values have pushed profits from home sales beyond tax exemption limits. While the IRS allows couples to avoid tax on up to $500K in capital gains from selling their primary residence, ~8% of home sales exceeded this threshold last year — triggering the capital gains tax, as reported by CoreLogic.

• In California, the percentage of home sales that surpassed the $500K exemption has doubled from the 2017-2019 average of 13.2% to 28.8% in Q4 2023. This metric has grown even faster in once-sleepy states.

• For instance, in Colorado, New Jersey, Rhode Island, and Oregon, the percentage of home sales with capital gains above $500K has nearly quadrupled over the same period.

Selling can wait: Since 1997, the capital gains exemption for home sales has remained unchanged. Adjusted for inflation, the $500K exemption would be equivalent to $262K today, significantly reducing its effectiveness. If you’re planning to sell your home, one way to lower your tax bill is by keeping records of renovations and improvements, which can be deducted from your taxable profit.