Twitter Short Interest Plunges

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Shares sold short in Twitter Inc. (NYSE: TWTR) dropped by 8.3 million shares to 51.8 million for the period that ended July 31. The move comes as Twitter’s shares have collapsed after its earnings report. In the past month, the stock price is down just over 10% to $16. Twitter’s short interest is a substantial 8% of its float.

Twitter’s shares have been pulled in two directions in the past year. The force that has driven them higher is speculation that the company might be taken over by another firm that wants its 300 million users. However, no real offer has materialized, perhaps because Twitter has been unable to make money from the huge user base despite the company’s ubiquity as a means for the communications of famous people, which include the U.S. president.

The bad news about Twitter got worse as it announced earnings, which is the primary downward pressure on the stock. Twitter announced:

The company posted second quarter revenue of $574 million, a decrease of 5% year-over-year. Quarterly GAAP net loss was $116 million, representing a GAAP net margin of (20%) and GAAP diluted EPS of ($0.16). This compares with a quarterly GAAP net loss of $107 million, representing a GAAP net margin of (18%) and GAAP diluted EPS of ($0.15) in the same period last year.

Average monthly active users rose only 5% from the same period the year before to 328 million. Twitter’s forecast for the third quarter was also disappointing:

Adjusted EBITDA to be between $130 million and $150 million;
Adjusted EBITDA margin to be between 25% and 26%; and
Stock-based compensation to be between $100 million and $110 million.
Additionally, for the full year 2017, Twitter expects:

Total non-GAAP expenses to be down 3% to down 6%, compared to full year 2016;
Stock-based compensation to be down 25% to down 30%, compared to full year 2016; and
Capital expenditures to be between $300 million and $400 million.

The fact that the short interest moved the way it did is counterintuitive. However, the number of shares sold short in relation to the float is not.