Short Sellers are Playing a Dangerous Game with Groupon and LinkedIn
Rolling the dice when it comes to earnings
This week is shaping up to be one of the busiest reporting weeks on the earnings reporting calendar. The Wall Street bears (those that believe stocks will drop) have apparently increased their exposure by shorting some very high-profile internet names to unprecedented levels. My primary focus is on LinkedIn and Groupon ahead of their results.
According to Data Explorers, an independent securities tracking company, short interest in LinkedIn has risen to an unprecedented high of 5%. This is an increase of 1% from November when the online professional networking site put 1.3 million shares on the market in a bid to raise $91 million. Data Explorers said almost all of the lendable supply of the stock is now out on loan following the increase in demand to borrow the stock.
Groupon, the gorilla of daily dealings has seen its short interest rise to an unprecedented high of 2%. According to Data Explorers, “although this is relatively low in absolute terms, it represents almost all of the lendable supply available to be borrowed, given the limited stock that was floated in the initial offering.”
It’s interesting that as we roll into the traveling time of year, that Expedia tops the list of high profile names that have been shorted, with the 13% of its shares on loan. Short interest in EXPE has doubled since the start of the fourth quarter. One reason to short Expedia shares is if you believe the company will or is loosing market share to daily deal sites offering travel deals.
When to hold em and when to fold em
Owning stocks long or short remind me of a line in a Kenny Rogers song; “You got to know when to hold ‘em and know when to fold ‘em.” Short sellers make their money by placing a ‘strategic bet’ that share prices will fall. In the case of Groupon, many believe that share prices are extremely over valued by as much as 40%. The problem is that it can be very expensive and potentially costly to place that bet.
Should Groupon, LinkedIn or others on Data Explorers short list surprise Wall Street with revenue numbers or make positive statements (that analysts believe in), the stock will take off. This will force shorts to cover (buy back the shares) at potentially higher prices, causing share prices to go even higher.
The other side of this equation, and one that shorts are betting on, is that revenue numbers or growth numbers miss expectations or perhaps the companies themselves come out with cautious statements. This would cause sellers to hit their sell buttons causing the shorts to smile all the way to their virtual banks.
Earlier today, shares of GRPN tagged the $24.90 mark. This is a price the shares haven’t seen since mid December. It also represents a 28% increase in share value since January 27th - that’s huge. LinkedIn’s performance has been stellar as well. Shares of LNKD have risen by 33% since the beginning of the year. Bad numbers by either of these two companies, and all those gains could dissipate in less than 5 minutes. It’s just a matter of days now until we find out who wins this round between the bulls and the bears.
About Data Explorers:
Data Explorers is the leading provider of securities lending data tracking short selling and institutional fund activity across all global market sectors. Established in 2002, Data Explorers is an independent company based in New York, London and Hong Kong. The company’s analytics help clients to identify investment opportunities and manage risk. With content sourced directly from market participants including prime brokers, custodians, asset managers and hedge funds, Data Explorers provides a unique data set of more than 3 million intraday transactions, covering $12 trillion of securities in the lending programs of over 20,000 institutional funds. The service is accessible through the major market data platforms including Bloomberg, FactSet and Thomson Reuters.
Source: Wealth Manager
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