Short Sellers Pile On Facebook and Google (FB, GOOG, ZNGA)
Among the social media companies based in the United States, Facebook (NASDAQ: FB), Google (NASDAQ: GOOG) and Zynga (NASDAQ: ZNGA) saw significant upswings in short interest between the September 13 and September 30 settlement dates.
The number of shares sold short in Angie's List (NASDAQ: ANGI), eBay (NASDAQ: EBAY), Groupon (NASDAQ: GRPN), Pandora Media (NYSE: P), United Online (NASDAQ: UNTD) and Yelp (NYSE: YELP) also increased in that time.
In addition, note that the number of U.S.-listed shares (or ADRs) sold short of Chinese social media companies Baidu (NASDAQ: BIDU) and Sina (NASDAQ: SINA) shrank in late September, while those in Renren (NYSE: RENN), Sohu.com (NASDAQ: SOHU) and YouKu Todou (NYSE: YOKU) grew.
Below we take a quick look at how Facebook, Google and Zynga have fared and what analysts expect from them.
The number of shares sold short in this social networking giant jumped about 48 percent to near 40.01 million, the highest level of short interest so far this year. That was on top of a 15 rise in short interest in the previous period, and it represents more than two percent of the total float.
Facebook is expected to post annual revenue growth of more than 30 percent both this year and next. The company has a market capitalization of almost $114 billion. While its long-term earnings per share (EPS) growth forecast is about 30 percent, the price-to-earnings (P/E) ratio remains in the stratosphere.
Of the 40 analysts who follow the stock and were surveyed by Thomson/First Call, 13 rate the stock at Strong Buy, and 16 others also recommend buying shares. The mean price target, or where analysts expect the share price to go, is more than eight percent higher than the current share price.
The share price has retreated more than seven percent in the past week, but it is still about 67 percent higher year-to-date. Over the past six months, the stock has outperformed the likes of AOL (NYSE: AOL), Google and Yahoo! (NASDAQ: YHOO).
Short interest in this Mountain View, California-based operator of Google+ and YouTube rose more than 23 percent in the period to more than 5.39 million shares, which was about two percent of the float. That was on top of an increase of more than 16 percent in the previous period. The days to cover is less than three.
The company has a market cap near $285 billion but does not offer a dividend. It has a long-term EPS growth forecast of almost 15 percent, and its P/E ratio is less than the industry average. Also, Google's operating margin also is higher than the industry average, and its return on equity is almost 16 percent.
Of the 42 surveyed analysts, 32 recommend buying shares, with 12 of them rating the stock at Strong Buy. They believe the shares have plenty of headroom, as their mean price target is more than 13 percent higher than the current share price. That target would be a new multiyear high.
Shares have traded mostly between $850 and $900 since May. The share price is up more than 18 percent year-to-date. The stock has underperformed not only Yahoo! and Facebook over the past six months, but the Nasdaq as well. It has outperformed the S&P 500 though.
Short interest in the San Francisco-based online social games operator rose more than 28 percent to around 29.32 million shares during the period. That ended three consecutive periods of declining short interest, and it represented more than five percent of Zynga's total float.
Zynga withdrew its application for an online gambling license from the state of Nevada during the period. The company has a market cap of less than $3 billion. The long-term EPS growth forecast is about 30 percent, but note that the return on equity is in the red.
For at least three months, the analysts' consensus recommendation has been to hold shares of Zynga. Note also that the share price has overrun the analysts' mean price target. So, until price targets are raised, no upside potential is indicated.
The share price jumped almost 28 percent in September, though it has pulled back about seven percent in the past week. Over the past six months, the stock has underperformed Electronic Arts (NASDAQ: EA) and Facebook, as well as the Nasdaq.
See also: Short Interest Moves in Facebook, Google
At the time of this writing, the author had no position in the mentioned equities.
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