Jefferies analyst Brent Thill joined Cowen & Co. analyst John Blackledge’s earlier downgrade of Snap Inc. (SNAP) stock today citing full valuation at Snap’s present stock price. While Blackledge lowered his target price for Snap to $11, Thill kept his target price at $15. According to Bloomberg, Snap now has double the amount of sell ratings, 10, than buy ratings, 5.
Snap is the third largest short in the U.S. application software sector behind SalesForce.com and Workday and the only short position in the top five that was profitable in 2017. Total short interest in the U.S. application software sub-industry is $17.04 billion, the eleventh most shorted sub-industry, and short exposure has increased $505 million over the last month.
Snap’s stock price is down 4.4% in mid-afternoon trading and short sellers are up $66 million in mark-to-market profits today, bringing year-to-date mark-to-market profits up to $77 million. We’ve seen short exposure in Snap decreasing since the beginning of October when it hit its year-to-date high of $1.999 billion. Stock borrow fees are in the 5% fee level, but if short selling increases we will see rates increase to the 10% to 20% fee range that we saw in November.
Over the past month short sellers have been increasing their short exposure in SalesForce.com and Workday and cutting their Snap short exposure, but today’s move may spur more Snap short selling as well. Snap’s new app redesign may be a tipping point for short sale profitability in the near term. If ad sales and user activity increases, Snap short sellers may join the rest of the top five application software shorts in the red.
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Managing Director Predictive Analytics, S3 Partners, LLC
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