MINDBODY, Inc (MB) short sellers will be looking to have their chakra’s realigned after incurring $130 million in mark-to-market losses on MB’s +65% stock price spike on Monday. MB’s stock price rose by $14.11/share on private equity firm’s Vista Equity Partners’ $1.9 billion, $36.50/share, buyout offer. MB short interest is $331 million, 9.24 million shares shorted or 22.48% of its float.
Short selling in MB began to increase in May of this year with shares shorted steadily increasing from 4 million shares to a peak of 10.4 million shares by mid-October. Short sellers were building their positions even as MB’s stock price rose to almost $44/share causing short sellers to have mark-to-market losses of $55 million over the first three quarters of the year.
A tepid research note by William Blair analyst Matthew Pfau in September and a data breach in October initiated MB’s price weakness and underwhelming 3rd quarter results brought multiple analyst downgrades and an over 20% drop in MB’s stock price. Prior to Monday’s price spike, short sellers were up $176 million, +62%, in the 4th quarter with year-to-date mark-to-market profits of $121 million, +52%.
After Monday’s $130 million in mark-to-market losses, MB short sellers are down -$10 million year-to-date, making 2018 a roller coaster ride with a -4% return. Short sellers have not closed out their positions yet, with MB’s stock price rise occurring at the open on the 24th, none of the shorts were able to escape the bloodbath and held onto their positions in hopes of a temporary pullback from that day’s highs.
With MB’s average daily trading volume in December, prior to this week’s trading, being only 672k it would take almost 14 days of trading to buy back the outstanding 9.2 million shares short position. We should see continued buy-side pressure on MB’s stock price as shorts unwind in size in the near-term, especially since MINDBODY has a thirty day window to find a more generous suitor and there is a legitimate chance that the $36.50/share offer price might be topped. There is a good chance that MB’s stock price will be pushed up closer to Vista Equity’s offer price as well as possibly trading past it if shorts decide to cover their positions sooner rather than later.
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Managing Director Predictive Analytics, S3 Partners, LLC
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