Snap Inc.’s (SNAP US) stock price declined back down to its $17/share IPO price in midday trading today and has since traded up slightly to $17.22/share. With investors dubious of the viability of its business model, slow user growth coupled with competition from established application providers Google (GOOGL US), Facebook (FB US), Instagram (acquired by FB) and WhatsApp (acquired by FB), SNAP shares have been under pressure as shares fell 20% in June.
SNAP short interest topped out at $1.44 billion on May 30th and has gradually declined in the past three weeks as some short sellers covered their shorts to lock in profits. Short interest is now $1.13 billion, down 22% from its historical high. Including today’s 4% price drop, short sellers are up $195 million since SNAP’s March IPO.
SNAP continues to have a firm hold as the third most shorted stock in the Application Software sector behind Salesforce.com (CRM US) and Workday (WDAY US), but is the only stock in the top five with a profitable year-to-date mark to market P/L.
| Application
Software Short Interest (in $mm’s) |
Ticker | Short
Interest |
3 Week
Change in Short Int. |
YTD
MTM P/L |
YTD
MTM P/L % |
3 Week
MTM P/L |
3 Week
MTM P/L % |
| Salesforce.com Inc. | CRM | $1,415 | +$48 | -$280.6 | -21.64% | +$37.4 | +2.62% |
| Workday Inc. | WDAY | $1,302 | -$137 | -$448.1 | -37.37% | +$10.8 | +0.77% |
| Snap Inc. | SNAP | $1,134 | -$303 | +$195.1 | +23.99% | +$176.6 | +21.72% |
| Ultimate Software Grp. | ULTI | $735 | -$48 | -$57.8 | -10.37% | +$42.4 | +5.48% |
| Paycom Software Inc. | PAYC | $710 | -$45 | -$248.6 | -37.33% | -$16.8 | -2.31% |
Stock borrow rates on existing short positions range between 35% and 40% fee while new borrows are going between 40% and 45% fee. With rates this high, keeping a SNAP short on your books is an expensive proposition. The financing cost for the entire $1.13 billion SNAP short position is $1.2 million/day.
SNAP’s lockups expire on July 31st and August 31st, which will release 1.2 billion shares into the market. This influx of shares will do two things – lower the average cost of SNAP’s stock borrows by increasing lendable supply and most probably drive SNAP’s stock price down as long shareholders will finally be able to exit their positions. The profits SNAP short sellers were able to make in the last three weeks makes paying $1.2 million in daily finance more palatable, and short sellers will probably hold onto their positions in hopes of a short-side windfall in SNAP’s lockup expiration dates. I would expect SNAP short interest to increase as we near the July 31st lockup expiry as long as the stock price remains near SNAP’s IPO price. Short sellers have been paying expensive borrow rates since the middle of May and now they have a $195 million cushion to make the 46 day wait until the first lockup expiry more comfortable.
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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