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Aug 10, 2016

S3 BLACKLIGHT: Wayfair Short Selling Easing as Price Drops 23%

Andrew Left of Citron Research issued a scathing report on Wayfair Inc. (W US) on August 31st 2015 when Wayfair’s stock price was already down 21% from its historical high of $53.58 on August 13th. After issuance of the report Wayfair’s stock price took another 12% hit, closing at $37.30.

Short interest in Wayfair was also affected by the Citron report. Average short interest from January to July 2015 was $255 million and from August to December 2015 short interest almost doubled to $503 million. Wayfair short interest hit its historical high in late December 2015 at $603 million and has steadily decreased this year, dropping as low as $417 million in February, but bouncing back slightly with a balance of $511 million today.

The S3 Velocity Indicator, a measure of the real-time relative change in shorting activity, had been trending slightly upward for Wayfair after its short interest bottomed out at the end of the first quarter. Since then, the Velocity Indicator for Wayfair has leveled off suggesting that the short momentum has stalled and that no new short selling of any size has hit the market recently.

The S3 Crowding Indicator, a measure of the magnitude of real-time shorting activity relative to market cap and float, not only reiterates the slowdown in short selling, but points out three days of significant short covering since late July, most recently on August 9th when short interest declined more than $20 million.

With Wayfair’s stock price down almost another 3% today after being down 20% yesterday, we are actually seeing some short selling today, $15 million so far this morning. Analysts are downgrading the stock even though quarterly sales were up 60% because net income, which was still negative but increasing in 2015, has plunged to over a $35 million loss in 2nd quarter 2016.

Short sellers now have to decide whether Mayfair turns into another Amazon.com (AMZN US) and will dominate the online furniture sector; or another Jet.com (JET US) which had amazing growth to go along with its turbo charged cash burn rate before being acquired, or a Pets.com which burned through $150 million in investor money before shutting its doors. The cost to borrow Wayfair stock has eased recently, dropping from 6.5% fee in the second quarter to 4.75% fee today so it will be cheaper for the half a billion dollars in shorts to stand by their convictions.

For more information on the above analysis, please contact:

Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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