Despite a blowout earnings report by Twitter (TWTR) last week that indicated its turnaround strategy is working, short sellers continued to increase their position in the social media company, according to financial research firm S3 Partners
X Short interest in Twitter has been climbing throughout 2018, S3 said in a note late Tuesday. The value of Twitter short positions started the year at $911 million and has added $400 million since then for total short interest of $1.3 billion, said S3.
That’s the eighth-largest short position in the internet and software services sector worldwide, it said.
“Unless the firm can continue to increase revenue and profits without depending on cutting R&D, sales and marketing expenses, shorts will continue to hold onto or build their short exposure waiting for Twitter’s stock price to fall back into the teens,” S3 said.
Last week, Twitter received several price-target increases from analysts after a fourth-quarter earnings report that topped the consensus estimates, reported after the market close on Wednesday. On Thursday, Twitter shares rose as much as 30% before settling back to finish the regular session at 30.18, up 12%.
Twitter shares climbed 8.1% to close at 33.44 on the stock market today.
IBD’S TAKE: Twitter has a strong IBD Composite Rating of 98 out of a possible 99 and a strong Relative Strength Rating of 98. The stock is trading well above its 50-day moving average, which can be a positive indicator.
A person who sells a stock short does so by borrowing shares and selling them. If the stock falls, they can buy the shares back, return them to the owner, and pocket the difference. But if shares rise, the short seller can face big losses.
Other targets of short sellers include Alibaba Group (BABA). S3 said short interest in Alibaba shares, by dollar volume, is among the highest of any stock worldwide. Short interest in Alibaba exceeds $22.4 billion, it said.
Alibaba reported its fastest revenue growth in at least 15 quarters for its fiscal third quarter, but earnings fell short of estimates. Revenue soared 56% to $12.8 billion.
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