Wayfair Inc. (W) reported 1st quarter 2020 results which beat on both earnings per share and revenues causing the stock to surge over +20% at the open. While long shareholders were sitting at home surrounded with recently delivered gleaming living room furniture and smiles on their faces, short sellers were glaring at increased mark-to-market losses on their dingy short positions.
Wayfair short interest is $8.11 billion, 23.18 million shares shorted, 37.76% of its float. Its stock borrow rate has been at General Collateral levels (30 bps fee, which is the cheapest rate for the easiest to borrow stocks) as borrow supply has been plentiful. But this week we have started to see a slight increase in rates as supply has been taken down recently due to a strong increase in short selling activity.
Overall, we saw -280 thousand shares of short covering, -1.19%, over the last month, but +689 thousand shares, +3.06%, worth of new short selling over the last week. Although shorts were trimming their short exposure 2-4 weeks ago, they were rebuilding their positions slightly over the last week. It is now the 16th largest short in the U.S. market.
W is the second largest short in the Internet & Direct Marketing Retail Sector.
W shorts had the 7th worst performance in the U.S. in 2020, but with the stock up nearly 24% today, they added -$736 million of additional mark-to-market losses today, bringing their year-to-date mark-to-market 2020 losses to -$1.90 billion.
We won’t know what today’s short activity was for Wayfair till tomorrow, but today’s price move was definitely not due to short covering or a short squeeze. With the stock opening at the day’s high, there was no way for short selling activity to cause the price move. It was long shareholders bidding up the price and no sellers at the lower bids which forced Wayfair’s stock price up over $175/share. There were certainly some Wayfair short squeezed out their positions as they got bloodied by the sudden and swift mark-to-market losses, but I would expect most of the shorts held on top their shorts hoping for a pullback throughout the day, which is exactly what happened with the stock closing closer to session lows.
That doesn’t mean that there won’t be a short squeeze in the near term as the large mark-to-market losses will drive out some short sellers, especially if the stock continues its rally that started in late March. But, if Wayfair’s stock price stabilizes around this $165 – $170 level and then starts to retreat, look for new shorts to get into the name as they will see it as an overbought stock. Either way, expect volatility on the short side in Wayfair.
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Managing Director Predictive Analytics, S3 Partners, LLC
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