Here’s Why Diamond Hill Capital Long-Short Strategy Initiated a Short Position in eBay (EBAY)

Diamond Hill Capital, an investment management company, released its “Long-Short Strategy” first-quarter 2025 investor letter. A copy of the letter can be downloaded here. The market was mixed in the first quarter of 2025, due to the uncertainty caused by the new administration’s avalanche of activity. However, the portfolio outperformed the Russell 1000 Index and the blended benchmark (60% Russell 1000 Index/40% Bloomberg US Treasury Bills 1-3 Month Index) in the quarter. In Q1, both long and short books generated relative tailwinds, with the short book underperforming the index, while the long book was positive, despite the index being negative. In addition, you may look at the fund’s top 5 holdings to learn about its best picks in 2025.

In its first-quarter 2025 investor letter, Diamond Hill Long-Short Strategy highlighted stocks such as EBay Inc. (NASDAQ:EBAY). EBay Inc. (NASDAQ:EBAY) is a marketplace platform that connects buyers and sellers. The one-month return of EBay Inc. (NASDAQ:EBAY) was 6.10%, and its shares gained 42.47% of their value over the last 52 weeks. On June 23, 2025, EBay Inc. (NASDAQ:EBAY) stock closed at $76.86 per share, with a market capitalization of $35.42 billion.

Diamond Hill Long-Short Strategy stated the following regarding EBay Inc. (NASDAQ:EBAY) in its Q1 2025 investor letter:

“As volatility picked up sharply in the quarter, we were active in the portfolio — and we anticipate that as volatility continues into Q2, we will likewise attempt to capitalize on compelling opportunities to reposition the portfolio for the period ahead. Among the new positions we initiated in Q1 were long positions in Salesforce and Capital One, as well as short positions in Matson and EBay Inc. (NASDAQ:EBAY).

eBay operates marketplace platforms connecting buyers and sellers in a handful of major global markets, including the US, UK, China and Germany. Though the company’s fundamentals have improved over the last several quarters, eBay is still losing share to numerous competitors. We consequently anticipate the company will need to invest to maintain its fundamentals and growth. With shares overvalued, in our view, we initiated a short position in Q1.”

Jim Cramer Calls eBay (EBAY) a “Real Shocker”

A close-up view of a customers phone, using the mobile app to buy products.

EBay Inc. (NASDAQ:EBAY) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held EBay Inc. (NASDAQ:EBAY) at the end of the first quarter, which was 45 in the previous quarter. While we acknowledge the potential of EBay Inc. (NASDAQ:EBAY) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.

In another article, we covered EBay Inc. (NASDAQ:EBAY) and shared the list of most profitable NASDAQ stocks to buy. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of EBAY as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.