We recently compiled a list of Cantor Fitzgerald’s Top Internet Stocks: Best Stocks To Buy According To $13.2 Billion Firm. In this article, we are going to take a look at where Etsy, Inc. (NASDAQ:ETSY) stands against Cantor Fitzgerald’s other top Internet stocks.
The rise of the internet and its ubiquity in our daily lives is perhaps the greatest technological innovation of the 21st century. The transformation of the internet into what can very well be described as a utility was unthinkable even during the peak of the dotcom era; however, the firms that started back then or those that leveraged it to mold their business model are among the largest and most valuable companies in the world right now.
The clearest example of this comes through the share price of the world’s largest eCommerce retailer. Founded by Jeff Bezos in 1994, this stock ranks 1st on our list of Beyond the Tech Giants: 35 Non-Tech AI Opportunities. Its market capitalization currently sits at a cool $1.96 trillion, and while it doesn’t make it the most valuable company in the world, the firm’s unique ability in being able to merge the high volume and total addressable market (TAM) components of the eCommerce and logistics industry with the high growth, high margins offered by cloud computing has introduced a lot of stability into its shares. So much so that its peak to trough share price fall this year wiped off 19% of its value, while Wall Street’s favorite AI GPU designer marked a much sharper 27% drop. In absolute terms, this internet stock has delivered 2,077x in returns since its IPO, which is a cool way to turn a dollar into two grand.
Yet, it’s still not the only internet stock that’s transformed Wall Street and the world. Two other dominant internet stocks are the world’s largest social media company founded by Mark Zuckerberg and the world’s largest search engine provider set up by Larry Page and Sergey Brin. Since they started trading, these two firms’ shares are up by 1,275% and 5,608%, respectively while their founders are among the richest individuals in the world.
This is the power of the internet. It has spurred new industries, created billionaires, and even has its currencies through cryptocurrencies. Safe to say, the internet is here to stay, whether it’s for posting memes or gaining access to healthcare from remote locations. But even though it’s been around for nearly three decades now, like the broader industry, the internet continues to evolve and open new frontiers.
While it’s lost some steam as the world dealt with the dual crises of the pandemic and high interest rate, the advent of fifth generation (5G) internet technologies is believed to expand the use of the internet across a diverse range of industrial and consumer applications. As per McKinsey, the Internet of Things (IoT) industry could create a value ecosystem that is maximally worth $12.5 trillion by 2030 end. Within this, factory usage of IoT accounts for more than a quarter of the value pie or $3.3 trillion. Application wise, the research firm believes that business to business or B2B applications hold the greatest potential for IoT value creation as they account for 65% of its value creation estimate.
Of course, the industrial sector is not the only one that’s being disrupted by the internet. Another key area where it is making its impact is banking. One of the oldest industries in the world, banks stand neck in neck with governments when it comes to bureaucratic processes, high overhead costs, slow decision making, and slow response times. This has proven to be quite a disadvantage for banks, as according to additional research conducted by McKinsey, internet companies like Google and Tencent are already offering banking related services where they can. Additionally, banks are also being challenged by financial technology firms, with the number of such companies growing from 25 in 2017 to 274 in September 2022 for a combined market value of $1 trillion. This shift to digital banking has also impacted traditional bank valuations, with bank stocks trading at a 70% discount in 2022. The research firm believes that banks that are successfully able to transition to a digitized model can unlock $20 trillion in benefits.
These benefits have already manifested. For instance, by adding language processing software to its business, one bank was able to remove 360,000 lawyer hours. As a whole, it is estimated that through digital banking, commercial banks can improve their margins by as much as 25 percent. For the banking industry, these are life or death improvements as during the 15 years that ended in 2022, bank margins had dropped by 25 percent and are on track for another 20 percent decrease over the next decade.
Finally, due to its ubiquity, internet stocks cannot be classified in one category. They range from social media firms to eCommerce companies, streaming services, and cloud providers. All these firms have their unique valuation drivers, which means that consumer exposure and heavy enterprise spending often prove to be the few broad based catalysts that apply to all firms. On this front, Cantor Fitzgerald, a firm that managed $13.2 billion in assets as of December 2023 has started to focus on some top internet stocks.
Driving its strategy is the belief that “despite strong performance over the last 18 months, valuations in internet names are fairly reasonable and should benefit from the expectation for upcoming rate cuts, tempered by decelerating top-line growth and as benefits from widespread cost-cutting fade.” So let’s take a look at Cantor’s top internet stocks.
Our Methodology
To compile our list of Cantor Fitzgerald’s top internet stock picks, we ranked the firm’s 22 internet stocks by their share price upside for Cantor’s share price target for all the stocks except for stock number 17. This is because the share price target for this stock wasn’t available, and as a substitute, the average analyst share price target was used to calculate the upside/downside percentage.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A young woman shopping for a vintage fashion item online.
Etsy, Inc. (NASDAQ:ETSY)
Number of Hedge Fund Holders In Q2 2024: 36
Share Price Target Upside: -3%
Cantor’s Rating: Neutral
Cantor’s Share Price Target: $50
Etsy, Inc. (NASDAQ:ETSY) is a specialty eCommerce company that focuses on selling hard to find and specialty items. This creates a double edged sword for the firm since while it provides it with a niche market in which Etsy, Inc. (NASDAQ:ETSY) can dominate, it also exposes the firm to a highly cyclical market that only does well when inflation is dropping and consumer spending is high. Consequently, Etsy, Inc. (NASDAQ:ETSY)’s shares are down by 33% year to date and have lost 16.41% over the past year as investors wait for the economy to improve before betting on the firm again. However, Etsy, Inc. (NASDAQ:ETSY) is also trying to diversify its business, and these initiatives are key to its hypothesis. The firm is focusing on onsite adds to further monetize its sellers, operating a gift mode to capitalize on its strength of specialty items with a high volume opportunity, and expanding users’ ability to make payments on its platform.
ClearBridge Investments mentioned Etsy, Inc. (NASDAQ:ETSY) in its Q1 2024 investor letter. Here is what the firm said:
“Online marketplace Etsy also saw weaker performance as consumer preferences for goods lagged market expectations. However, we think there is substantial opportunity for the company to reaccelerate growth and increase margins as it extracts greater economic rents from its two-sided marketplace for artisanal goods due to commanding market share, lack of direct competition and support from new activist investors.”
Overall ETSY ranks 16th on our list of Cantor Fitzgerald’s top Internet stocks. While we acknowledge the potential of ETSY as an investment, our conviction lies in the belief that some 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 more promising than ETSY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.