A strong fourth quarter in which Twitter logged user growth and was able to surpass Wall Street views isn’t deterring investors who are betting the stock will go lower despite a recent rise in shares.
Short sellers, or those that bet shares will go down, are increasing their negative bets on the social media company, with share shorted and notional short interest increasing “significantly” since late January, according to S3 Partners, a financial analytics firm. Since the start of 2018, short interest has been increasing for Twitter with total short interest currently at $1.311 billion, making it the 8th largest short in the worldwide internet and software sector.
That’s not to say short sellers have not been having a tough go of it given Twitter’s stock jumped on its earnings report last week. Twitter’s shares ended last week up 21.57%, surpassing the $30 a share level for what S3 Partners said was the first time since the end of 2015. As a result, shorts had $231.8 million in mark-to-market losses last week with the total losses to date at $299.3 million or down 31.59%. The stock closed Tuesday (Feb. 13) trading session up 8% or $2.49 at $33.44 a share and Wednesday’s session up 0.93% at $33.75. (See more: David Einhorn: Twitter Is Undervalued Vs. Facebook.)
Despite the rally on the back of fourth-quarter earnings, shorts aren’t giving Twitter much odds of success. According to S3 Partners, so far this year Twitter shares shorted are 3.5 million more than last year and short interest is up $400 million.
“Unless the firm can continue to increase revenues and profits without depending on cutting R&D, sales and marketing expenses, shorts will continue to hold onto or build their short exposure waiting for TWTR’s stock price to fall back into the teens,” wrote Ihor Dusaniwsky, managing director predictive analytics at S3 Partners. (See more: World’s Second-Largest Advertiser Threatens to Boycott Tech Giants.)
For its fourth-quarter, the microblogging website operator reported earnings of $0.19 a share, higher than the $0.14 a share Wall Street was looking for. Revenue of $732 million also topped the consensus which stood at $686.1 million. Monthly active users of 330 million was slightly lower than the 332.5 million Wall Street was looking for but didn’t prevent the stock from jumping on the news. While monthly active user growth was only 4% compared to last year’s fourth quarter, daily active users increased 12%.
While short interest is still high on Twitter, not every short is betting shares will go lower. In late January, prominent short seller Andrew Left of Citron Research told CNBC he is long the company arguing the market is underestimating its position in the social media sphere. “You can see the engagement levels on Twitter, and the relevancy it’s playing in our society can’t be denied,” said the Citron investor. “They dominate that space of social media.”