Snap

SNAP Inc. (SNAP) short sellers, and their Prime Brokers, have been scrambling this morning to cover an avalanche of stock loan recalls which hit the street today. The recalls were due to beneficial owners having sold stock which were on loan to the street. With over 5 million shares recalled street-wide today, stock loan desks have been sweeping the street for the last blocks of available stocks to borrow to satisfy these lender recalls. Prime Brokers are borrowing stock from lenders who are not recalling shares at the moment, to cover their open recall requests. If there is still enough liquidity in the market Prime Brokers will be able to avoid following through on their client recalls, which would force their hedge funds to begin buying-to-cover and exit their SNAP short trades earlier than anticipated. If stock loan availability dries up, we can expect a significant amount of short covering driving up SNAP’s stock price even further from its recent historical low.

Kylie Jenner tweeted that she does not open her Snapchat Inc. (SNAP) app anymore and the stock is down over 8% in mid-afternoon trading. Kylie’s tweet along with a system redesign that has alienated many of its users continues to drive SNAP’s stock price down. SNAP is the largest short in the Application Software sector with $1.99 billion of short interest with shorts increasing their exposure since the beginning of January.

SNAP Inc. A (SNAP US) short interest decreased by $273 million in July, and is currently at $1.003 billion today. Short interest peaked on June 1^st at $1.44 billion and has decreased along with SNAP’s stock price with short sellers covering some of their positions.

Nomura Instinet analyst Anthony DiClemente wrote a research note on Snap Inc. (SNAP US) which stated that daily average user growth for the first two months of the 2^nd quarter had slowed. Recently, Snap management stated that a “seasonality” effect had negatively impacted user acquisition, but a more likely reason for Snap’s difficulty in growing its user base and monetizing its platform is the direct competition it is fighting off from Google (GOOGL US), Facebook (FB US), Instagram (acquired by FB) and WhatsApp (acquired by FB).

Snap Inc. (SNAP US) short interest has traded in a $730 million to $900 million range during the second quarter but as the stock recently tested the $18 support level short sellers increased their positions when SNAP’s stock price rebounded close to $21/share. There has been almost $200 million of new short activity in the last week, including today’s intraday trading, bringing today’s short interest to $1 billion.

Snap Inc – A (SNAP US), the parent company of the mobile application Snapchat priced its 200 million share offering on March 1^st, with an expected price of $17, generating a total stock offering worth $3.4 billion, and went public today. The offering was only for non-voting shares, with co-founder and CEO Evan Spiegel and co-founder and CTO Robert Murphy owning a total of 40% of SNAP’s market cap and 89% of the voting rights. Morgan Stanley was the lead underwriter of the IPO syndicate, which consists of Deutsche Bank, Goldman Sachs and JP Morgan. Notably, the co-founders are hoping to convince 25% of the IPO buyers to agree to an extended lockup period of 1 year.