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Nov 14, 2016

S3 BLACKLIGHT: End of the Line for LINE Borrow?

Hedge funds are having a tough time locating borrow from their prime broker on LINE (3938 JP & LN US). 
Short interest in the Japanese incorporated messenger services app, which dually-listed its shares in both Tokyo and New York earlier this year to help it reach international investors, is currently sitting at its post-IPO high.  According to our real-time estimates, short exposure is currently $199 million on the JP-listing and $241 million on the US-listing.  Short demand spiked considerably in the week leading up to the company’s 3Q earnings call on 10/26, jumping 83% as hedge funds positioned themselves to reap the rewards of a miss.  And they were right, as both profit and revenue were below analyst estimates, resulting in the stock closing down 5.7% and shorts pocketing $13.5 million in paper profits.  
Following the downward price trajectory since the end of September, LINE shares only have to drop another 15% before it hits the IPO price, an important level for any new company.   With only 20% of the outstanding shares freely floated in the market, borrow liquidity to short the stock has been limited from the start.  Any further negative news prior to 1/10/17 IPO lockup expiry may cause local Japanese retail investors to trim their long holdings, and with agent lender supply now close to being fully utilized, a potential short squeeze can’t be ruled out.     
For more information on the above analysis, please contact:
Matthew Unterman, Director, S3 Partners, LLC    

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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