Short Interest in Snap Surges by 25 Million Shares

September 13, 2017 by Douglas A. McIntyre

Much of Wall Street remains skeptical, or even pessimistic, about the fortunes of social media company Snap Inc. (NYSE: SNAP). Short interest in its shares rose by 25 million to 94 million in total for the period that ended August 31. The figure is an extremely high 19% of Snap’s float. No other stock traded on the New York Stock Exchange posted a larger increase in its raw number.

Investors have a long list of reasons to bet against the company. Its shares trade at $15, against a post-IPO range of $29.44 to $11.28. Snap has had troubling convincing shareholders and potential shareholders that it is anything more than a new version of Twitter Inc. (NYSE: TWTR), a Web 2.0 company that should never have gone public but did for the benefit of venture capital investors, the founders and senior executives.

Snap has made a miniature comeback in the past month, with its shares up by 20% over the period. Short sellers must believe the rally will be short lived. And one investment bank recently warned it was a sucker rally. Deutsche Bank analyst Lloyd Walmsley downgraded the stock from Buy to Hold, which really means “sell” in Wall Street language. He wrote:

After broad conversations across the ad ecosystem over the last month, feedback was decidedly mixed. Facebook’s efforts to copy Snap’s product (on a best-in-class ad platform) has also somewhat obviated the imperative some had around Snap a year ago; many feel they can get the key younger audience via Instagram.

It is a complex way of saying the social media world is too crowded, people will not use several social media platforms at once and Facebook Inc. (NASDAQ: FB) continues to and will always dominate the market.

Nothing new or particularly positive has happened at Snap recently. Many investors believe it is still a dog, and the weight of evidence is in their favor.

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