Poor earnings, questions about whether its business model can be sustained and analyst downgrades have already cost Twitter Inc. (NYSE: TWTR) shareholders billions of dollars. Now, short sellers have decided Twitter’s plunge has not ended.
Source: Courtesy of Twitter Inc.
Short interest in Twitter rose from 46.7 million on April 14 to 50 million on April 30. A more important number is the percent of Twitter’s float which is sold short–an extraordinary 19.5%.
No matter what Twitter’s financial sins have been, there is still an army of people who believe that, with 300 million users, it cannot help but be successful. Skeptics, on the other hand, argue that the revenue that these users yielded in the last quarter–$250 million — is almost meaningless in comparison to 300 million.
One of the endearing thing about some short sellers is the lengths to which they will go to push down a stock’s price so that they can make money. Twitter has given them plenty of ammunition. The short sellers are undoubtedly whispering negative opinions into the ears of other large investors, analysts, and the press. Whatever the source of information, Barron’s wrote a very negative article about Twitter a week ago. It was filled with evidence that, even after a horrendous sell-off, Twitter’s shares were overvalued. So, Twitter fell 17.9% this past week to $32.05, on top of a 6.2% decline the week before.
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Twitter has the unpleasant distinction of being large enough and visible enough that short sellers are willing to take a big position in its shares. That position can only be a headwind for Twitter, which can be added to the large number it already has.
Twitter needs a major piece of good news to take back momentum. Usually, this kind of news happens when earnings are announced. That is more than two months away. Twitter needs to pull a rabbit out of its hat in the meantime. Or, short sellers will savage the shares in greater and greater numbers
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