Short Sellers Climb Aboard The Twitter Train (GRPN, TWTR, ZNGA)
Among the social media companies based in the United States, Groupon (NASDAQ: GRPN), Twtter (NYSE: TWTR) and Zynga (NASDAQ: ZNGA) saw significant upswings in short interest between the November 15 and November 29 settlement dates.
The number of shares sold short in Angie's List, eBay, United Online and Yelp also increased in that time. But the short interest in Google was essentially the same as in the previous period.
However, Facebook, LinkedIn, Pandora Media and Shutterfly saw their short interest decline in the final two weeks of the month.
In addition, note that the number of U.S.-listed shares (or ADRs) sold short of Chinese social media companies Baidu, Sina, Sohu.com and YouKu Todou grew in late November, while those in Renren shrank.
Below we take a quick look at how Groupon, Twitter and Zynga have fared and what analysts expect from them.
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This online local commerce marketplace saw short interest grow more than 21 percent during the period to more than 42.46 million shares, which was the highest it has been in at least a year. The number of shares sold short was more than 10 percent of the float, and the days to cover was more than two.
Groupon gave customers $100 million in Groupon Bucks for Black Friday. The company has a market capitalization more than $6 billion. While Groupon has a long-term earnings per share (EPS) growth forecast of about 26 percent, its return on equity is in negative territory.
The consensus recommendation of the analysts who follow the stock that were polled by Thomson/First Call has been to hold shares for at least the past three months. Yet, the analysts' mean price target, or where they expect the share price to go, suggests potential upside of more than 14 percent.
Shares pulled back early in the period but have mostly recovered, so the share price is in the same neighborhood as a month ago. The stock has outperformed eBay and the broader markets over the past six months, but it has underperformed Facebook in that time.
Short interest in this micro-blogging service provider surged by more than 181 percent in the second reporting period since its highly anticipated initial public offering to more than 17.75 million shares, or more than seven percent of the float. It would take about seven days to close out all of the short positions.
Twitter announced upgraded encryption to guard against snooping by the NSA. The San Francisco-based company has a market cap of more than $28 billion. While the long-term EPS growth forecast is about 70 percent and the return on equity is more than 115 percent, note that the operating margin is in the red.
The consensus recommendation of the 21 analysts surveyed is to hold Twitter shares. The analysts see no room for shares to run, as the mean price target is much less than the current share price. Even the street-high price target indicates only marginal potential upside.
Twitter's share price is about 21 percent higher in the past month and reached another post IPO high on Wednesday. The stock has outperformed not only the likes of Facebook and LinkedIn since coming public, but the Nasdaq and the S&P 500 as well.
Short interest in the San Francisco-based online social games operator rose around 33 percent to more than 45.60 million shares during the period. That was the greatest number of shares short in the past year, and it represented about eight percent of Zynga's total float. The days to cover remained less than two.
During the period, Zynga won a jury verdict in a patent suit in a federal court in Texas. The company has a market cap of more than $3 billion. The long-term EPS growth forecast is about 30 percent, but note that the PEG ratio and the return on equity are both in the red. Like the others featured here, Zynga offers no dividend.
For at least three months, the analysts' consensus recommendation has been to hold shares of Zynga. It has more Underperform ratings than buy recommendations. 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 is more than 20 percent higher than a month ago, as well as up more than 43 percent in the past six months. The stock has underperformed Facebook over the past six months, but it also outperformed competitor Electronic Arts and the broader markets.
At the time of this writing, the author had no position in the mentioned equities.
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