M&A Rumors Keep Twitter Shorts On The Sidelines

Twitter Inc TWTR investors are getting treated to what has become seemingly a routine quarterly beating on Thursday. Shares are down 11.6 percent after the company reported yet another disappointing quarter in terms of ad sales and revenue growth.

But while Twitter bulls are hurting, Twitter bears are rejoicing. In fact, in the past several years, Twitter has been a quite profitable trade for short sellers. The stock is now down 69 percent in the past three years, and the latest quarterly report shows little hope for a turnaround in the immediate future.

Yet with all the negative momentum for Twitter, there are relatively few Twitter short sellers out there. According to shortsqueeze.com, Twitters short percent of float is currently a modest 7.1 percent. There are only about 44.0 million shares of Twitter held short with 3.4 days to cover.

In fact, Twitter’s short interest has been steadily falling in the past six months, down 21.4 percent.

Why aren’t more traders riding the Twitter downturn?

In this case, the simple explanation is that short sellers aren’t scared of Twitter’s business; they are scared of a buyout.

Twitter has been the subject of countless buyout rumors in the past year. Although no buyer has stepped up with an actual offer, a buyout could torch any short sellers and hammer them with huge losses overnight.

No matter how pessimistic traders feel about Twitter’s core business, the possibility of a buyout will likely keep short sellers in check for the foreseeable future, eliminating the possibility of a meaningful short squeeze no matter how low shares go.