Microsoft Corp’s (MSFT US) purchase of LinkedIn Corp (LNKD US) for $26.2 billion; successful live steaming of NFL games; a declining rate of user growth since 2011; and a stock price that was down 44% in 2014, down 35% in 2015 and down 19.5% in 2016 before today’s price spike all contributed to Twitter’s (TWTR US) determined search for a buyer\partner for its online social networking and blogging service.
The prospect list is a veritable who’s who list in several industries: tech powerhouses Alphabet Inc. (GOOGL US), Facebook Inc. (FB US) and Apple Inc. (AAPL US); integrated telecom giants Verizon Comm. (VZ US) and Comcast Corp (CMCSA US); media moguls News Corp (NWSA US) and Walt Disney Co. (DIS US); the other software company, Salesforce.com (CRM US); and Chinese serial buyers Tencent Holdings (700 HK), Alibaba Group (BABA US) and Baidu Inc. (BIDU US).
Short sellers have been very active in Twitter ever since its stock price peaked at $73/share just after it IPO’ed at $26/share. Short interest climbed to over $2 billion in just 2 months after its November 2013 IPO and averaged $1.5 billion in 2014 and $1.2 billion in 2015 as Twitter lost over two thirds of its peak market value when it stock price hit $23/share at the end of 2015.
With Twitter’s stock price falling below $17/share, short sellers began to close their positions to lock in more of their profits and short interest hit a two year low of $777 million in January 2106. As the firm’s user acquisition rates continued to decline and expected click monetization never fully materialized, short sellers came back and short interest increased by over 40% to $1.1 billion by May.
Twitter’s short momentum accelerated in September with the Blacklight Velocity Indicator, a measure of real-time relative change in shorting activity, trending upward after being relatively flat since the end of June. Short interest, which had been ranging between $950 million and $1.1 billion, hit $1.4 billion this week, up 35% since the end of the 2nd Quarter.
This was bad timing for short sellers to get aggressive; with Twitter’s stock up 19% today short sellers have taken over a $225 million trading loss today. Many short sellers are seeing this as a start to a Twitter rally, we’ve seen over 1.8 million short shares covered today as the less stalwart short sellers have fallen victim to the first wave of a short squeeze. If Twitter’s stock price keeps rising the short squeeze will continue as there are several million shares of recent shorts that may be quick on the trigger to exit their trades if their losses keep mounting
For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC Ihor.Dusaniwsky@S3Partners.net
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