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Nov 13, 2017

S3 Analytics: ROKU Shorts Holding Steady as Stock Price Soars

Roku Inc.’s (ROKU) stock price has surged 130% in just three days as the company reported strong third quarter results, a discount on its streaming stick for the holiday shopping season and a licensing agreement with Funai Philips which will include ROKU’s app on its televisions in 2018.

ROKU is the 6th largest short in the worldwide Consumer Electronics Sector, trailing only Garmin Ltd. (GRMN) and GoPro Inc. (GPRO) in the U.S. market.

ROKU’s short interest has increased since its IPO, but has remained relatively flat in November. There was no short covering in size that would explain ROKU’s 130% price move, the price move was solely due to long shareholders bidding up ROKU’s stock price. ROKU’s increase in notional short interest was due to its stock price increasing and not a change in shares shorted.

Short sellers who were looking for a post-IPO price reversal were up $10.4 million in mark-to-market profits as of Friday of last week. Shorts are down $48.5 million in mark-to-market losses on today’s 29% price increase and are now down $108 million in mark-to-market losses since ROKU’s IPO.

Even though ROKU’s price spike may look like an attractive short entry point, there will not be significant ROKU short selling after this price move, as lendable inventory is getting thin, with only approximately one million shares left to borrow. If shorts begin to eat into this tight inventory and increase their positions we can expect stock borrow rates to increase quickly. Another 200,000 shares of shorting will probably push shares over the 20% fee level and if recalls start to increase due to long shareholders who have been lending their shares selling to realize profits we can expect stock borrow rates to jump into the 30% to 40% fee level quickly.  

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, 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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