Shrinking Short Interest In Social Media Stocks

Short sellers seemed to lose interest in most of the leading social media companies based in the United States between the February 13 and February 27 settlement dates.

Leading that short interest trend were LinkedIn Corp LNKD, Google Inc GOOG C shares and Twitter Inc TWTR.

Below we take a quick look at how these three stocks have fared recently and what analysts expect from them. That is followed by a glance at the short interest movement in other social media stocks.

Google

Short interest in C shares of this Mountain View, California-based operator of Google+ and YouTube dropped about 13 percent late in the month to around 2.40 million shares. That was less than 1 percent of the total float, and it was the smallest number of shares short so far this year.

There was some speculation about a spin-off of YouTube during the period. The company has a market cap of more than $375 billion. Its long-term EPS growth forecast is almost 12 percent, and its price-to-earnings (P/E) ratio is less than the industry average.

Only three analysts still follow the C shares and were surveyed by Thomson/First Call. The consensus recommendation, such as it is, is to hold these non-voting shares. The mean price target, or where analysts expect the share price to go, is more than 14 percent higher than the current share price.

The share price rose less than 2 percent during the two-week short interest period but has pulled back somewhat since then. It is up less than 5 percent year-to-date. The stock has underperformed not only Facebook and Yahoo over the past six months, but the Nasdaq and the S&P 500 as well.

See also: Facebook's Social Media Empire By The Numbers

LinkedIn

Short interest in this online professional network operator tumbled about 29 percent to around 4.73 million shares in the final weeks of the month, or less than 5 percent of the float. The number of shares short has not been that low since last June. The days to cover rose to more than three.

LinkedIn shares got a boost from a positive note from Morgan Stanley in February. The Mountain View, California-based company has a market cap of near $33 billion. The long-term EPS growth forecast is more than 40 percent, but the return on equity is still in negative territory.

Of the 38 polled analysts, 29 recommend buying shares, while the rest recommend holding them. The mean price target is more than 9 percent higher than current share price and would be a new 52-week high. At least one analyst sees LinkedIn reaching $331 a share, suggesting about 20 percent upside.

Like the S&P 500, shares were essentially flat during the short interest period. They have met resistance near $270 since early February but are up more than 15 percent year to date. Over the past six months, the stock has outperformed the likes of Facebook and Google, as well as the broader markets.

Twitter

A nearly 18 percent drop in short interest in this micro-blogging service provider took it to more than 26.52 million shares, the first time since November is has been less than 30 million. That end-of-February reading represents less than 6 percent of the float. Days to cover was more than one.

At least one analyst saw Twitter stock as overvalued during the short interest period. The San Francisco-based company has a market cap of more than $29 billion. Note that the return on equity and the operating margin are both in negative territory.

Of the 39 analysts surveyed, 17 recommend buying Twitter shares. For at least three months the consensus recommendation has been to hold shares. A move to the analysts' mean price target would represent a gain of more than 12 percent from the current share price, but that consensus target is less than the 52-week high.

Here too the share price was essentially flat during the short interest period, though it has fallen almost 4 percent since then. Shares are still up about 29 percent year to date. The stock underperformed Facebook, Google and LinkedIn, as well as the Nasdaq and the S&P 500, over the past six months.

See also: Pandora Analyst Asks: What's Different Now?

And Others

Short sellers also shied away from eBay, Facebook, Google A shares, Groupon, Shutterfly, United Online and Yelp during the period. However, short interest increased in Angie's List, MeetMe, Pandora and Zynga in late February.

In addition, note that the number of U.S.-listed shares (or ADSs) sold short of Chinese social media companies Baidu, Sohu.com, YouKu Todou and YY and grew in the final weeks of February, while short interest in Renren, Sina and Weibo shrank.

At the time of this writing, the author had no position in the mentioned equities.

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