Amazon.com Inc. (AMZN US) reports 1st Quarter results after the bell today, hoping to improve upon its disappointing 4th Quarter 2016 results when revenues came in almost $1 billion shy of expectations, but beat EPS expectations by $0.19/share. This quarter, according to NASDAQ, analysts are expecting earnings of $1.13/share on $35.3 billion of revenues. Given AMZN’s size, $440 billion market cap, continued stratospheric growth is getting harder to achieve. However, being the clear leader in cloud based computing and launching its e-commerce wrecking ball towards additional brick and mortar retail segments, such as auto parts and supermarkets, has given AMZN the chance to use its established distribution platform to generate incremental revenues without cannibalizing existing revenue streams.
AMZN has handily outperformed NASDAQ returns, 22.7% vs. 12.2%, but the stock continues to be the fourth largest equity short in the U.S. market, trailing only Tesla Inc. (TSLA US), Apple Inc. (APPL US) and AT&T Inc. (T US). AMZN is also the top short in the Retail sector.
| Largest Retail Sector
Short Interest (in $ mm’s) |
Ticker | Short Interest | 1 Month Change
In Short Interest |
| Amazon.com Inc. | AMZN | $4,834.3 | +$180.6 |
| Netflix Inc. | NFLX | $3,971.4 | -$230.1 |
| Priceline Group Inc. | PCLN | $2,962.2 | +$785.6 |
| Best Buy Co. Inc. | BBY | $1,862.7 | +$41.3 |
| Target Corp. | TGT | $1,844.0 | +$31.1 |
The Retail sector, with $52.3 billion in shorts, was the third most shorted sector in the U.S. market behind only the Software & Services sector ($70.5 billion) and the Pharma, Biotech & Life Sciences sector ($56.5 billion). Keep in mind that the sector was not a one way bet. You needed a stock picker’s acumen to succeed.
| Most Profitable Shorts in Retail Sector (in $ mm’s) | Ticker | 2017 Average
Short Interest |
Mark to Market
2017 P\L |
2017
Return % |
| Target Corp. | TGT | $2,162.2 | +$616.7 | +28.52% |
| Signet Jewelers | SIG | $683.1 | +$263.7 | +38.61% |
| Kohl’s Corp. | KSS | $969.7 | +$243.8 | +25.14% |
| JC Penney Corp. | JCP | $558.1 | +$219.4 | +39.30% |
| Autozone Inc. | AZO | $1,466.2 | +$161.4 | +11.01% |
| Least Profitable Shorts in Retail Sector (in $ mm’s) | Ticker | 2017 Average
Short Interest |
Mark to Market
2017 P\L |
2017
Return % |
| Amazon.com Inc. | AMZN | $4,722.4 | -$935.8 | -19.82% |
| Netflix Inc. | NFLX | $3,443.5 | -$637.7 | -18.52% |
| Priceline Group Inc. | PCLN | $2,437.5 | -$479.3 | -19.67% |
| RH | RH | $590.8 | -$344.5 | -58.32% |
| Best Buy Co. Inc. | BBY | $1,602.3 | -$338.3 | -21.11% |
After losing $554.5 million in 2016 on an average short position of $3.96 billion for a -14.0% return, AMZN short sellers are down $935.8 million year-to-date in 2017 on an average short position of $4.72 billion for a -19.8% return.
AMZN short interest is $4.77 billion, up $530 million, or 13%, for the year and up $569 million, or 14%, in April. Short interest peaked at $6.0 billion at the end of January and shorts covered $1.8 billion of their positions, ending March at $4.2 billion. Prior to this earnings release short sellers, put on an additional $600 million, bringing their outstanding position to $4.8 billion.
With AMZN making a bull run to $1,000/share, short sellers are not capitulating but rather adding to their exposure. Looking at year-to-date short winners and losers in the retail sector, the better bet would have been to be long the AMZN wrecking ball and short the brick and mortars (TGT, SIG, KSS, JCP & AZO).
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.net
Head of Research, S3 Partners
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