More big moves in social media short interest

Here's a look at three social media companies that investors are betting against.

By Benzinga Feb 28, 2014 11:38AM

The display of a smartphone with the app logos of various social media plattforms © Jens Büttner/dpa/CorbisBy Nelson Hem


Early February saw resumed interest by short sellers in several social media companies based in the United States, particularly LinkedIn (LNKD), Twitter (TWTR) and Zynga (ZNGA).


The number of shares short in Facebook, Groupon, Shutterfly and Yelp also rose by double-digit percentages between the January 31 and February 14 settlement dates. Benzinga on MSN Money


However, short interest in Angie's List, eBay, Pandora Media and United Online shrank during the period. And in Google it was little changed from the previous settlement date.


In addition, note that the number of U.S.-listed shares (or ADRs) sold short of Chinese social media companies Renren, Sina, Sohu.com and Youku Todou increased in the first weeks of the month, while short interest in Baidu declined.


Below we take a quick look at how LinkedIn, Twitter and Zynga have fared and what analysts expect from them.


LinkedIn

Short interest in this online professional network operator swelled almost 38 percent to more than 5.19 million shares in the first two weeks of the month. That was the greatest number of shares short in the past year, and it represented more than five percent of the float. Days to cover is about one.


This Mountain View, California-based company has announced plans to expand into China. It has a market capitalization of more than $25 billion. The long-term earnings per share (EPS) growth forecast is more than 38 percent, but the price-to-earnings (P/E) ratio is much higher than the industry average.


Of the 38 analysts surveyed by Thomson/First Call, 22 recommend buying shares, while the rest recommend holding them. The mean price target, or where analysts expect the share price to go, is more than 16 percent higher than current share price, though that is less than the 52-week high.


Shares pulled back more than 13 percent during the two-week period but have risen more than eight percent in the past week. The 50-day and 200-day moving averages recently formed a death cross. Over the past six months, the stock has underperformed Facebook , Google and the broader markets.


Twitter

Short interest in this microblogging service provider has grown in every period since its highly anticipated initial public offering last November. The 44.77 million shares short in mid-February represents more than 27 percent of the float. But the days to cover dropped to less than two.


Analysts still expect Twitter to book more than $1 billion in revenue for 2014 but to be barely profitable. The San Francisco-based company has a market cap of less than $31 billion. Note that the return on equity and the operating margin are both in the red.


Only six of the 30 analysts surveyed recommend buying Twitter shares. The mean price target is less than the current share price, which suggests that the analysts expect the stock to retreat rather than advance. But at least one analyst still sees more than 19 percent upside potential.


Twitter's share price has pulled back more than two percent since mid-February, but it is still up more than 24 percent since its IPO. The stock's performance has been essentially in line with Facebook and Google over that period. But Twitter underperformed the Nasdaq and the S&P 500.



Zynga

Short interest in the San Francisco-based online social games operator rose about 45 percent to around 43.15 million shares during the period. That is a year-to-date peak, as well as the second highest number of shares short in the past year. It represents about seven percent of Zynga's total float.


Zynga reported better-than-expected revenue and a smaller net loss in early February. The company has a market cap of more than $4 billion. The long-term EPS growth forecast is about 30 percent, but note that the return on equity and operating margin are still in negative territory.


For at least three months, the analysts' consensus recommendation has been to hold shares of Zynga. It has more Underperform ratings than buy recommendations. Note also that the share price has overrun the analysts' mean price target. So, until price targets are raised, no upside potential is indicated.


The share price increased more than 53 percent in the past month and reached a new 52-week high on Wednesday. It is well above the 50-day moving average. Over the past six months, the stock has underperformed not only Electronic Arts and Facebook, but the Nasdaq as well.


At the time of this writing, the author had no position in the mentioned equities.


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