Short Sellers Are Liking Facebook And Twitter
Among the leading social media companies based in the United States, Facebook Inc (NASDAQ: FB), Twitter Inc (NYSE: TWTR) and Yelp Inc (NYSE: YELP) had the significant upswings in short interest in late October.
Shares short in Angie's List, eBay, Google and Zynga also increased between the October 15 and October 31 settlement dates. Short sellers retreated from Groupon, LinkedIn, MeetMe, Pandora, Shutterfly and United Online during the period, though.
In addition, note that the number of U.S.-listed shares (or ADSs) sold short of Chinese social media companies Baidu and YY increased in the final weeks of the month, but short interest in Renren, Sina, Sohu.com, Weibo and YouKu Todou declined.
Below we take a quick look at how Facebook, Twitter and Yelp have fared recently and what analysts expect from them.
See also: Stifel's 2020 Vision For Internet Stocks
Shares sold short in this social networking giant increased about 15 percent to near 43.82 million, or more than 2 percent of the total float. That more than took back a decline in the previous period, and it was the highest level of short interest since mid-June. Days to cover was less than one.
Facebook is expected to post annual revenue growth of more than 37 percent both this year and next. The company has a market capitalization of more than $208 billion. While its long-term earnings per share (EPS) growth forecast is more than 35 percent, the price-to-earnings (P/E) ratio remains sky high.
Of the 43 analysts who follow the stock and were surveyed by Thomson/First Call, 14 rate the stock at Strong Buy and 22 others also recommend buying shares. The mean price target, or where analysts expect the share price to go, is more than 14 percent higher than the current share price.
Facebook shares climbed 10 percent but then lost much of that ground during the period, falling back below the 50-day moving average. The stock more than 36 percent higher year to date. Over the past six months, Facebook has outperformed Google and the S&P 500 but underperformed Yahoo!.
Short interest in this micro-blogging service provider increased around 21 percent. The 28.88 million shares short at the end of the month represents about 7 percent of the float and was the greatest number of shares short since July. Here too it would take less than a day to cover all short positions.
Twitter reported solid quarterly results and announced an alliance with IBM. The San Francisco-based company has a market cap of more than $26 billion. Though strong revenue growth is predicted for the current quarter and the next, note that the return on equity and the operating margin remain in the red.
The number of Buy ratings has increased in each of the past three months, and the consensus recommendation of polled analysts now is to buy Twitter shares. The mean price target suggests there is about 17 percent upside potential, but that target is well less than the 52-week high.
Short sellers watched Twitter shares pull back 17 percent during the short interest period, but it has recouped less than 3 percent since. The stock still is more than 33 percent lower year to date. Over the past six months, Twitter has underperformed LinkedIn but outperformed Facebook and the S&P 500.
This online local guide operator saw its short interest rise around 21 percent in the latter weeks of October to more than 9.65 million shares, which was almost 16 percent of the float. The number of shares sold short has been shrinking since the end of June. The days to cover dropped to less than two.
Yelp posted strong quarterly results during this period and also announced acquisitions. The San Francisco-based company has a market cap of more than $4 billion. Both its return on equity and operating margin are near zero. The long-term EPS growth forecast, though, is more than 57 percent.
For at least three months, the consensus recommendation of the polled analysts has been to buy shares. They seem to think the shares have plenty of room to run, as their mean price target is more than 26 percent higher than the current share price. That target is less than the 52-week high, though.
The share price dropped about 10 percent during the two-week period, and it is still around 12 percent lower year-to-date. The 50-day and 200-day moving averages formed a death cross recently. The stock has underperformed Yahoo! but has outperformed the S&P 500 over the past six months.
At the time of this writing, the author had no position in the mentioned equities.
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