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May 9, 2017

S3 Research: May 1st – 5th Best and Worst Short Performers

Every week, S3 tracks short sellers’ equity positions in the US, revealing the trades that delivered positive results or missed the mark.  After tracking $872 billion worth of short positions, the following is a list of this week’s top five best and worst performing shorts over the week.

Top 5 Best Performing Shorts:
• TSLA: Tesla reported mixed 1st quarter results with revenues of $2.7 billion, beating analyst expectations of $2.61 billion, but an EPS loss of $1.33 versus expectations of just a $0.81 loss. Tesla delivered a record 25,000 cars in the quarter, but emphasis remains on the successful rollout of the more affordable Model 3 this summer, which will transform Tesla into a mainstream auto manufacturer.
• AMD: AMD reported 1st quarter earnings that were in line with expectations and 2nd quarter guidance was slightly better than expected, but its stock price declined over $3/share as sales expectations for its Ryzen chip did not overwhelm investors. With AMD’s stock price tripling prior to this week’s reversal, the price move was due to long shareholders selling to lock in profits as short interest only rose slightly.  
• CTL: CenturyLink reported weaker 1st quarter revenues and guided even lower for the 2nd quarter as a result of increased costs related to the Level3 merger and seasonal declines in usage and sales. The move to high speed service and incremental revenue growth from its Level3 acquisition should increase revenue per user in the 2nd half of the year according to CEO Glen Post, but the stock is paying for its recent overheated growth rate with a short term reversal.
• TWLO: Twilio released better than expected 1st quarter earnings, but issued a 2nd quarter revenue guidance warning as its largest customer, Uber, has begun to use alternative vendors. Even though Uber makes up only 12% of Twilio’s revenue stream, the stock fell almost $9 on the news. Twilio stated that it has seen significant growth in its customer base, diversifying its revenue dependence, and minimizing the negative long term effect on earnings from the loss of Uber’s business.
• S: Sprint reported mixed quarterly results with a net loss larger than Zacks estimate and Sprint’s stock price fell $1.30. Short sellers have been on the wrong side of Sprint’s year-long rally, losing $782 million in mark to market P/L in 2016, a negative 92% return on an average short position of $852 million. Last week’s price decline moved short sellers onto the positive side of the ledge. They were up $160 million on May 3rd and are now up $55 million in mark to market P/L in 2017 for a 5% return on an average short position of $1.1 billion.

Bottom 5 Worst Performing Shorts:
• HLF: Herbalife reported stronger than expected 1st quarter earnings and raised its 2017 full year guidance numbers. Herbalife short interest is now $1.96 billion, up $811 million, or 71%, for the year. Short sellers were up $190 million in mark to market P\L in 2016, but have given it all back in 2017 with a total loss of $629 million this year. Short sellers have been steadfast in their conviction, with 27 million shares shorted since early March.
• RH: RH’s stock price increased by almost 10% on May 5th as they announced a $700 million stock buyback program for 2017, which follows a $300 million buyback program in 2016. Shorts lost $90 million in mark to market P/L on the news after being down $53 million on May 3rd ahead of the official news. Short sellers are down $514 million for the year, a negative return of 83%.
• MOH: Molina Healthcare removed both their CEO and CFO, both sons of the company’s founder, citing poor financial performance. Shorts had been expecting poor financial results as short interest rose 25%, to $499 million prior to the terminations and earnings release, which has been postponed to May 10th.
• EXAS: Exact Sciences Corp hit a year-to-date high of $35.43 on May 5th on strong 1st quarter financial results. Use and sales of their Cologuard colon testing product increased 150% year-on-year which resulted in a 227% year-on-year increase in quarterly revenues. Although short sellers did buy to cover some of their short stock, short interest is over $1 billion for the first time in the stock’s history.
• AAPL: Apple Inc. is the second worst performing short behind Tesla Motors in 2017 with a mark to market loss of $1.72 billion for a negative return of 26.4% on an average short position of $6.5 billion. This follows a smaller loss in 2016, a loss of $403 million for a negative return of 6.8% on an average short position of $5.9 billion. Shares shorted have gone down as Apple’s stock price has gone up – with traders and portfolio managers selling shares to keep their outstanding short dollars at risk stable.   

Want deeper insight into the above analysis? Contact:
Head of Research, S3 Partners
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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