eBay’s stock took a significant hit at the start of trading on Wednesday after the company revealed a lower-than-expected year-end sales forecast.

In a report released late on Tuesday, the e-commerce giant reported earnings of $1.03 per share from $2.5 billion in third-quarter sales. On average, analysts surveyed by FactSet had predicted eBay (EBAY) to earn $1 per share from $2.5 billion in sales. To provide some perspective, during the corresponding period in the previous year, eBay had achieved earnings of $1 per share from $2.4 billion in sales.

Although eBay’s earnings exceeded expectations and sales were right on target, the guidance for the current quarter fell short of what was anticipated.

On the stock market, eBay’s stock fell by over 4% in recent trading, reaching $38.92.

Lower Sales Projections for the Holiday Season

For the fourth quarter, eBay expects sales to range from $2.47 billion to $2.53 billion, which is less than the $2.6 billion expected by analysts. Moreover, the company forecasts adjusted earnings per share for the fourth quarter to be between $1 and $1.05, slightly below the $1.04 per share estimated by FactSet.

eBay officials also projected that gross merchandise volume for the fourth quarter would be between $17.9 billion and $18.3 billion, while Wall Street had anticipated a higher figure of $18.35 billion.

eBay faces stiff competition from major retailers like Walmart (WMT) and Amazon (AMZN), particularly as consumers reduce their spending. Before the earnings report, eBay’s stock had already declined by approximately 2% over the year.

eBay’s CEO, Jamie Iannone, pointed out that “inflationary pressures and rising interest rates continue to erode consumer confidence and reduce the demand for discretionary goods.” He also noted a weakening trend in consumer behavior in the early part of the fourth quarter, particularly in Europe, indicating a somewhat subdued holiday sales season.

Similar concerns were brought up by fellow e-commerce platform Etsy (ETSY) in the previous week.

eBay’s Strategy: Leveraging AI for Better Listings

Iannone emphasized that eBay is focusing on what it can control, using generative artificial intelligence to create tools that assist sellers and cater to its core enthusiast shoppers. For instance, in specific markets, eBay has launched a functionality known as “magical listing,” automating the process of populating sales pages with information gleaned from images.

Generative AI enables eBay to utilize its vast collection of images and listing data to quickly create attractive listings. Early users have reported that these capabilities help them bring more items from their closets and garages to the market, potentially reducing waste.

Furthermore, eBay has created strategies that center on specific product categories, such as luxury handbags, watches, and jewelry.

In the third quarter, eBay’s gross merchandise volume increased by 2% year over year, reaching $18 billion, exceeding the anticipated figure of $17.8 billion, according to consensus estimates.

eBay is also making efforts to increase its advertising revenue from its platform, with ad sales growing by 24% year over year in the third quarter, totaling $366 million.

The main challenge for eBay lies in whether these new initiatives can compensate for the softness in its core marketplace business and whether it can achieve sustained growth in the face of stiff competition from players like Shopify (SHOP), Amazon, niche competitors like Etsy, and the rapidly expanding Chinese retailers such as Temu and Shein.