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Oct 27, 2016

S3 BLACKLIGHT: Twitter Short Interest Hits Year to Date High of $1.3 Billion

Twitter Inc. (TWTR US) reported quarterly results which although beating analyst’s expectations highlighted its stagnating growth momentum. Although revenues did rise over 8%, to $616 million, and beat analyst’s target of $605 million, it was the 9th straight quarter of slowing revenue growth. Monthly active users also grew in the quarter to 317 million, up 1.7%, beating analyst’s expectations by 2 million. And Twitter beat analyst’s revenue estimates by posting a loss of $103 million, $0.15/share, versus $132 million a year ago.

In an effort to cut costs Twitter is eliminating 9% of its workforce, primarily in its sales and marketing staff, in order to trim expenses and try and become profitable by 2018. CEO and co-founder Jack Dorsey hopes to bolster Twitter’s growth by expanding its footprint via live video partnerships such as the NFL which will allow it to sell more video advertising. In addition to adding content Dorsey is looking to make the platform easier to use and address the burgeoning issue of online harassment.

With Salesforce (CRM US), Google (GOOGL US), Apple (AAPL US) and Disney (DIS US) all withdrawing from takeover talks last month Twitter’s short interest has hit a year to date high of $1.3 billion, up 31% on the year. S3’s Velocity Indicator, a measure of the real-time relative change in shorting activity, continues to trend higher signaling continued momentum and conviction on the short side. If CEO Dorsey cannot re-invigorate Titter’s growth rate and significantly bump up user activity via premium live video, live news content and live event commentary short interest will continue to climb. Renewed short demand may push short interest near its historical highs of over $2 billion which it hit in early 2014.

Short sellers may have to keep wary on Disney as Betaville recently reported that Disney, king of the sequels, has shown renewed interest in a Twitter takeover bid. With Disney looking to expand its footprint into the social media sector Twitter may still be a viable target, especially since Disney owns a stake in the Major League baseball’s streaming product which could use Twitter live video capabilities.

Twitter stock is up $0.50 today, to $17.79, and we’ve seen over 400,000 shares shorted today. TWTR borrow costs are still at General Collateral levels, the cheapest cost for the easiest to borrow stocks, but if short demand continues at this rate we should expect rates to begin to increase in the near future.  

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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