Thursday was the last trading day of the week, with investors on Wall Street getting the day off on the Good Friday holiday. Some had expected market benchmarks to give up ground heading into the weekend, but the Nasdaq Composite (^IXIC +1.52%) led the way higher for markets. Even the Dow Jones Industrial Average (^DJI +1.79%) managed to inch higher along with the S&P 500 (^GSPC +1.20%).
|
Index |
Daily Percentage Change |
Daily Point Change |
|---|---|---|
|
Dow |
+0.01% |
+3 |
|
S&P 500 |
+0.36% |
+15 |
|
Nasdaq |
+0.76% |
+91 |
Data source: Yahoo! Finance.
However, many investors are still focusing on looking for companies whose prospects look poor enough to justify selling their shares short. Short-selling is highly risky, but some institutional investors still find compelling arguments against well-known companies. Airbnb (ABNB +2.71%) and Sprout Social (SPT 2.13%) are two of the stocks that short-sellers have targeted in recent days, and their arguments have some shareholders wondering if they should sell the stocks.
Is this Airbnb's worst enemy?
Shares of Airbnb fell nearly 5% on Thursday. The alternative accommodations website provider was the target of a short-seller's report arguing that numerous problems could hold Airbnb stock back in the long run.
NASDAQ: ABNB
Key Data Points
Edwin Dorsey writes the Bear Cave blog, which features a variety of ideas for those seeking to bet against certain companies. Its installment this week covered Airbnb, and the blog post went into detail about Airbnb's shortcomings.
On one hand, Bear Cave noted that incidents involving both guests and hosts have harmed Airbnb's reputation among travelers and communities, holding back traffic and making it more difficult for would-be hosts to get a favorable reception where they want to make properties available. In addition, smart hosts have figured out how to make the most of their opportunities. That can involve making direct connections with frequent visitors to avoid Airbnb's increasingly hefty fees and keep more of their profits for themselves.
Yet those well-known headwinds haven't hurt Airbnb's business performance. Sales have continued to rise as more people return to travel after having spent the initial part of the COVID-19 pandemic at home. In addition, the remote work phenomenon has many people choosing Airbnb properties for longer-term stays, which is bolstering opportunities for the alternative accommodation platform provider.
Is Sprout Social getting ahead of itself?
Sprout Social shares fell another 2% on Thursday, extending losses after an 8% drop on Wednesday. The social media management software platform provider was the subject of a short-seller report from The Razor's Edge that suggested that shareholders are getting too optimistic about Sprout's prospects.
The report noted that Sprout Social stock has done a lot better than many of its SaaS stock counterparts, in part because of the belief that it can continue to post revenue growth above 30% per year in both 2023 and 2024. By contrast, The Razor's Edge believes that tailwinds from Salesforce.com (CRM +0.51%) having chosen not to support its competing Social Studio product are unlikely to keep feeding new clients to Sprout Social much longer. That could lead to slowing growth that in turn would expose the stock's relatively high valuation.
NASDAQ: SPT
Key Data Points
Sprout has indeed seen a lot of interest from investors who like how it's looking to take advantage of artificial intelligence (AI). The company sees potential in combining machine learning and AI with its social media management features, particularly given its desire to offer efficiency-enhancing capabilities in its platform.
It's always valuable for investors to look at counterarguments against a particular stock. If your investing thesis can't withstand criticism from short-sellers, then it could mean you don't have the conviction necessary to stick with the stock for the long run. By contrast, if you still believe in a stock's prospects even after hearing the bearish argument, then it can go a long way toward boosting your confidence.
