Twilio Inc TWLO shares are up 2.9% in the past two days following an upgrade by Morgan Stanley. S3 Partners analyst Ihor Dusaniwsky said the upgrade could potentially be the catalyst for a Twilio short squeeze.
The Numbers
Dusaniwsky said Twilio has the largest outstanding short position of any stock in the internet services and infrastructure group, with more than $1.73 billion in short interest. Despite Twilio’s 20.9% sell-off in the past three months, Dusaniwsky said Twilio short sellers have registered more than $126.2 million in mark-to-market losses so far in 2019.
Short sellers were aggressively selling Twilio shares in spring and early summer, with the stock’s total number of shares shorted more than doubling to 8.23 million shares since the end of February. Dusaniwsky said short sellers have continued piling in on the recent pullback as well. Twilio’s short interest is up 17.5% in the past 30 days alone.
Squeeze Ahead?
Thursday’s upgrade and subsequent 2% gain in Twilio shares cost short sellers $40 million in losses, S3 said.
If Thursday and Friday’s bullish momentum continues, Dusaniwsky said Twilio’s short percent of float of 13% could ultimately trigger a short seller rush for the exits.
“There was a large increase in TWLO shares shorted in the 2nd and 3rd quarters, [but] a solid rally in the stock may create a squeeze that could undo several months of short selling activity,” Dusaniwsky said.
On the other hand, if Twilio shares drop into Friday’s close, he said short sellers could be emboldened by the lack of conviction from the long side.
Benzinga’s Take
Thursday’s upgrade gave both Twilio bulls and short sellers an opportunity to reconsider their positions and the stock’s near-term trajectory. How the stock responds on Friday afternoon and early next week will go a long way in determining whether the multi-month pullback is over or if the stock is ultimately headed for new lows.
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