Market Overview

Short Sellers Double Down On Twilio Following Rally

Short Sellers Double Down On Twilio Following Rally

Twilio Inc (NASDAQ: TWLO) shares have been on fire in the past year, gaining more than 147%. However, financial analytics firm S3 Partners said Tuesday short sellers are extremely skeptical of the Twilio rally.

What Happened

The cloud communications platform is up more than 50% so far in 2019 on the strength of 81% revenue growth in the most recent quarter.

Twilio stock sputtered in late 2016 after coming out of the gates hot following its IPO. S3 analyst Ihor Dusaniwsky said short sellers initially cashed in on their post-IPO gains but have been steadily adding to their position ever since as Twilio shares make new highs.

Since Sept. 1, 2018, shorts have added 7.4 million shares to their position and have incurred $566.5 million in mark-to-market losses, Dusaniwsky said. Overall, short sellers are now down $850.5 million since the 2016 Twilio IPO.

Why It's Important

Twilio now has $1.58 billion of shares held short, roughly 10% of the stock’s float. Short sellers have added $1.04 billion of that position within the past nine months alone.

Dusaniwsky said there seems to be a clear divergence between short seller sentiment and Twilio’s actual numbers, which continue to top Wall Street expectations.

“Short sellers see the stock as walking a high wire, one small slip in their next quarterly results may result in a precipitous fall from grace and what they believe to be an ‘overbought’ stock will tumble back down to more realistic price multiples,” Dusaniwsky wrote.

So far, the Twilio short thesis has been a dud. With expectations sky-high on Wall Street, it may not take much of an earnings miss for Twilio shares to pull back a bit from all-time highs and net short sellers some near-term profits.

Twilio traded around $134.24 per share at time of publication.

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Latest Ratings for TWLO

Jul 2020Wolfe ResearchInitiates Coverage OnOutperform
Jul 2020RBC CapitalMaintainsOutperform
Jul 2020Morgan StanleyMaintainsOverweight

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