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
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