Short Sellers Pile On Twitter (FB, TWTR, ZNGA)
Judging by the recent changes in short interest in the social media companies based in the United States, it would seem that short sellers are retreating from Facebook (NASDAQ: FB) and Zynga (NASDAQ: ZNGA) in order to pile on Twitter (NYSE: TWTR).
The number of shares sold short in Angie's List, Google, Groupon and Shutterfly also increased somewhat between the November 29 and December 13 settlement dates. However, eBay, LinkedIn, Pandora Media, United Online and Yelp saw their short interest decline in the first 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, Renren, Sina and Sohu.com grew in early December, while those in YouKu Todou shrank.
Below we take a quick look at how Facebook, Twitter and Zynga have fared and what analysts expect from them.
The number of shares sold short in this social networking giant declined about 22 percent in the period to more than 31.98 million, or almost two percent of the total float. That was the second period in a row of falling short interest and returned it to the level it was in mid-October.
Facebook is expected to post annual revenue growth of more than 35 percent both this year and next. The company has a market capitalization of more than $141 billion. While its long-term earnings per share (EPS) growth forecast is more than 31 percent, the price-to-earnings (P/E) ratio remains very high.
Of 40 analysts who follow the stock and were surveyed by Thomson/First Call, 13 rate the stock at Strong Buy and 19 others also recommend buying shares. But their mean price target, or where analysts expect to go, is only marginally higher than the current share price.
Facebook shares are trading near an all-time high after rising more than 26 percent in the past month. However, over the past six months, the stock has underperformed the likes of AOL, Google and Yahoo!, even though it has outperformed the broader markets.
Short interest in this microblogging service provider grew by more than 33 percent in the third reporting period since its highly anticipated initial public offering. The more than 23.67 million shares represents almost 10 percent of the float. It would take less than two days to close out all of the short positions.
Shares soared after Twitter released new ad-targeting tools during the period. The San Francisco-based company has a market cap of more than $38 billion. While the long-term EPS growth forecast is more than 77 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 23 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 is less than the current share price.
Twitter's share price is about 74 percent higher in the past month and reached another post IPO high on Christmas Eve. 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 fell more than 11 percent to more than 40.43 million shares during the period, taking back some of the 33 percent rise in the previous period. That mid-month figure represented more than seven percent of Zynga's total float.
Zynga has exceeded low earnings expectations in recent quarters. 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 almost eight percent lower than a month ago, but still up more than 46 percent in the past six months. The stock has underperformed Facebook over the past six months, but it also outperformed competitors Activision Blizzard and Electronic Arts.
See also: Danger Zone: Electronic Arts
At the time of this writing, the author had no position in the mentioned equities.
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