Market Overview

Short Sellers Stick With These 3 Social Media Stocks

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Among the leading social media companies based in the United States, eBay (NASDAQ: EBAY), Groupon (NASDAQ: GRPN) and LinkedIn (NYSE: LNKD) bucked the trend toward declining short interest in early July.

Short sellers shied away from Angie's List (NASDAQ: ANGI), Facebook (NASDAQ: FB), Google (NASDAQ: GOOG), Pandora Media (NYSE: P), Shutterfly (NASDAQ: SFLY), United Online (NASDAQ: UNTD), Yelp (NYSE: YELP) and Zynga (NASDAQ: ZNGA) between the June 30 and July 15 settlement dates. The number of shares short in Twitter (NYSE: TWTR) was essentially unchanged from the previous period.

In addition, note that the number of U.S.-listed shares (or ADSs) sold short of Chinese social media companies Sina, Sohu.com and YouKu Todou increased in the first weeks of the month, but short interest in Baidu, Renren and YY declined.

Below we take a quick look at how eBay, Groupon and LinkedIn have fared and what analysts expect from them.

See also: Facebook Lays To Rest Old Worries About Mobile Strategy

eBay

Short interest in this San Jose, California-based online commerce company grew by more than five percent to around 22.92 million shares in early July. That was the highest number of shares short since February, and it came to about two percent of the float. The days to cover was more than two.

eBay has a market capitalization of more than $65 billion. It is expected to post double-digit revenue growth in the current quarter and the next. The long-term earnings per share (EPS) growth forecast is more than 12 percent. The operating margin is better than the industry average, but the return on equity is in the red.

Of the 39 analysts who follow the stock that were surveyed by Thomson First Call, 24 recommend buying shares, with half of them rating the stock at Strong Buy. The mean price target, or where analysts expect the share price to go, is more than 11 percent higher than the current share price.

Shares ended the two-week settlement period only marginally higher than where they started, and they have climbed almost five percent more since. The stock has outperformed the likes of Amazon.com and Overstock.com, but underperformed the NASDAQ and the S&P 500 over the past six months.

Groupon

This online local commerce marketplace saw short interest swell nearly 10 percent during the period to almost 88.39 million shares. That was the greatest number of shares sold short in at least a year, as well as more than 19 percent of the float. It would take more than five days to cover all short positions.

Analysts continued to speculate in early July whether struggling Groupon would be able to turn around. The Chicago-based company now has a market capitalization of more than $4 billion. While Groupon has a long-term EPS growth forecast of more than 27 percent, its return on equity is in negative territory.

The consensus recommendation of the analysts surveyed has been to hold shares for at least the past three months. However, the analysts' mean price target suggests there is potential upside of more than 27 percent. That consensus target is much less than the 52-week high, though.

During the period in question, the share price retreated more than three percent. It is now down about 47 percent year to date and well below the 200-day moving average. Over the past six months, the stock has not only underperformed eBay and Facebook, but the broader markets as well.

See also: Facebook's New Twitter Feature

LinkedIn

Short interest in this online professional network operator swelled about 20 percent to more than 5.42 million shares in the first two weeks of the month. That was the greatest number of shares sold short in the past year, and it represented more than five percent of the float. Days to cover is about three.

This Mountain View, California-based company bought news alert startup Newsle in July. LinkedIn has a market capitalization of more than $21 billion. The long-term EPS growth forecast is more than 34 percent, but the operating margin is lower than the industry average and the return on equity is in the red.

Of the 36 polled analysts, 24 recommend buying shares, while the rest recommend holding them. A move to the analysts' mean price target would be a gain of more than 20 percent for shares. Note that shares traded higher than that consensus target earlier this year.

Shares pulled back more than seven percent during the short interest period, but they have risen more than 12 percent since, climbing above the 50-day moving average. Over the past six months, the stock has underperformed not only Facebook and Google, but also the broader markets.

At the time of this writing, the author had no position in the mentioned equities.

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