We recently compiled a list of the 10 Worst Augmented Reality (AR) Stocks According to Short Sellers. In this article, we are going to take a look at where Etsy, Inc. (NASDAQ:ETSY) stands against the other AR reality stocks that short sellers do not recommend.
Augmented Reality (AR) has been an exciting development within the broader tech sector. AR offers a partly immersive experience to users through which they can interact directly with a 3D overlay onto the external reality in real-time. There are several interesting examples of AR usage in today’s tech sector, such as AR projections from phone devices, AR windshields on cars, and, perhaps most commonly, AR glasses. Suffice it to say this is a growing area within tech with immense potential, and there’s a lot of excitement surrounding AR players in the market today.
In our previous articles on AR stocks, we’ve covered some of the key players in this space, including notable tech titans. However, if you’ve kept up with developments in the AR space, you’d know that many investors are still considering this area to be a risky investment overall and are not convinced that the billions of dollars that are going into developing AR tech are justified. Because of this type of sentiment in the market, one of the major businesses in AR/VR today, Reality Labs, is undergoing loss upon loss and is unable to really make it back.
Investors Are Worried About the Future of AR Companies
On April 25, Rob Sanderson, managing director at Loop Capital, joined CNBC’s “The Exchange” to discuss Mark Zuckerberg’s increased spending in AR/VR. He noted that the company had been spending about a quarter’s worth of earnings on Reality Labs to build up the vision of the Metaverse, but there’s not a great return on investment for this spending, and nor are there any ways to justify it. Another interesting factor here is that despite the immense spending on Reality Labs and presumably the Meta Quest 2 headset, most tech experts who have gotten the chance to try out this headset believe that it loses out in competition with another, pricier headset – the Vision Pro. According to Joanna Stern, Wall Street Journal’s senior personal technology columnist, the Vision Pro is just not comparable with the Quest 2. The Vision Pro is winning in this race because it’s lighter, offers more seamless operability, and is just more user-friendly in terms of its features – all this despite the hefty price tag.
With the way things are, it’s unsurprising that investors are beginning to lose faith in Reality Labs and really can’t wrap their heads around the immense spending being done there. This type of concern is actually rampant across the board for many AR stocks in the market today, with several of these companies having the same issue of increased spending, which tends to throw investors in a panic because many of the companies operating in the AR space right now are actually quite small, and still have to prove their worth in the market. Considering this widespread concern, we’ve compiled a list of some of the worst AR stocks according to short sellers, so investors looking to buy into this space know where to put their money and which companies to absolutely avoid, at least for the time being.
Our Methodology
We first compiled a list of 20 AR stocks by sifting through ETFs and online rankings. We then selected the 10 stocks with the highest short interest and ranked them in ascending order of this metric. We have also mentioned the number of hedge funds holding stakes in each stock, as per Insider Monkey’s hedge fund data for the second quarter.
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: 36
Short Interest: 12.9%
Etsy, Inc. (NASDAQ:ETSY) is an e-commerce company based in Brooklyn, New York, but it has started branching out its business to include AR in various tools. The company has recently introduced an AR feature in its iOS app that places Etsy sellers’ artwork on a user’s wall using AR tools. Nearly a million Etsy items now have real-size AR functionality added to them to assist users of the app.
Investors are shying away from Etsy, Inc. (NASDAQ:ETSY) this year, though, considering disappointing financial results in the second quarter. The company’s gross merchandise sales were down by 3.2% year-over-year, a decline brought about by headwinds from a tough macroeconomic environment. This came right after a 5.3% decline in gross merchandise sales in the first quarter. While the decline has narrowed a bit, the trend still shows an overall downward trajectory for Etsy, Inc. (NASDAQ:ETSY). Habitual buyers on Etsy, Inc. (NASDAQ:ETSY) also decreased by 3% year-over-year in the second quarter.
While Etsy, Inc. (NASDAQ:ETSY) was doing well during the pandemic, probably because the quarantine drove people to make more online purchases, the current market position is heavily disfavoring the e-commerce player. Consumers have moved back to pre-pandemic spending habits with Etsy, Inc. (NASDAQ:ETSY) facing the consequences of this. The company’s guidance for the second half of 2024 is also offering only a modest acceleration in gross merchandise sales, which is not enough to tempt investors to stick around or take up positions in this stock.
Etsy, Inc. (NASDAQ:ETSY) was spotted in the portfolios of 36 hedge funds in the second quarter, with a total stake value of $1.2 billion. Elliott Management was the largest shareholder in the company, holding 4,500,000 shares.
Artisan Partners mentioned Etsy, Inc. (NASDAQ:ETSY) in its second-quarter 2024 investor letter:
“We ended our investment campaigns in Bentley and Etsy, Inc. (NASDAQ:ETSY) during the quarter. Etsy is the leading e-commerce marketplace for buyers and sellers of unique, hard-to-find handmade or vintage products. Given its large addressable market, experienced management team and unique technology investments, we believed the company had a long runway for further top-line growth. However, financial results have been disappointing, and we decided to exit the position.”
Overall ETSY ranks 7th on our list of the AR reality stocks that short sellers do not recommend. While we acknowledge the potential of ETSY as an investment, we believe that AI stocks hold great promise for delivering high 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.