24/7 Wall St.

Sellers who have shorted Twitter Inc. (NYSE: TWTR) shares likely got slammed recently on rumors about a buyout from Walt Disney Co. (NYSE: DIS), Salesforce.com Inc. (NYSE: CRM) and Microsoft Corp. (NASDAQ: MSFT). Shares have risen over 20% recently to $23.27. The short interest in Twitter rose 4.3 million in the period that ended September 15 to 55.5 million. That is nearly 10% of the float.

Investors have had plenty of reason to bet against Twitter as the turnaround of CEO Jack Dorsey has failed. User growth has plateaued at just above 300 million. Earnings have been troubling, as has guidance. For the periods ahead, the outlook is poor, barely better than last year’s results:

For Q3, we expect:

• Revenue to be in the range of $590 to $610 million;
• Adjusted EBITDA to be in the range of $135 to $150 million;
• Stock-based compensation expense to be in the range of $165 to $175
  million;
• GAAP share count to be in the range of 705 to 710 million shares;
• Non-GAAP share count to be in the range of 715 to 725 million shares.

For FY 2016, we expect:

• Capital expenditures to be $300 to $375 million;
• Adjusted EBITDA margin to be 26-27%.

And Twitter’s shares have acted appropriately. Before the takeover rumors, they were down 31% year to date. If no buyer materializes, the drop will continue.