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Jul 6, 2017

S3 Research: Short Sellers Feasting on Blue Apron Stock

Blue Apron Holdings Inc. (APRN US) began trading on June 29th after IPO’ing at $10/share. APRN initially traded slightly higher intraday but ended up closing at its IPO price. Today marks one week of trading for the meal-kit provider and its stock price has fallen $1.87 below its IPO price, down 18.7% in its initial week of trading.

As with most IPO’s, short selling is usually hindered by lack of initial stock borrow supply and short locates may be difficult to get or very expensive to finance. With APRN having only a 30 million share float, we anticipated initial short selling to be limited and expensive. While early short sellers were able to get some locates very few short sellers were able to fill their complete orders.

Total short interest is only 3 million shares, or 10% of the float, and initial borrow rates on existing shorts range between 45% and 60% fee. We are seeing some easing in borrow rates today as lendable inventory stabilizes with long shareholders’ shares settling in margin or lending accounts. Today’s borrow rates are ranging between 35% and 50% fee and there have been several larger blocks of stock borrows trading throughout the day. We expect APRN’s stock borrow activity to mimic Snap Inc’s (SNAP US) with an initial surge of short selling driving borrow rates up and within two weeks settling down into the 1% to 2% fee range.

Total stock borrow availability is still difficult to judge as we are not seeing a large amount of institutional holdings at this time. Although lenders are not showing large amounts of stock available to borrow to the broker community, there is definitely stock hidden away as “buffer” that will be accessed over the next week or two. In an effort to keep stock borrow levels as high as possible for the longest amount of time, lenders disclose only a portion of their holdings in order to suggest a greater sense of stock borrow scarcity than is truly there. By limiting the stock borrow supply they disclose, lenders and brokers can pick and choose who they lend to and hopefully keep rates at more profitable levels. Eventually, as short selling demand wanes, lenders lower their fees in order to lend out as much of their portfolio as possible and a true rate equilibrium is established.

Over the next few weeks, several million more shares of APRN will be available to borrow and borrow rates will drop. But if APRN’s stock price continues to weaken, shorts may try to rush into trades to catch these early post-IPO negative returns and keep borrow rates high for several more weeks.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, 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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