Facebook Inc (FB) shares shorted has more than halved in 2019, declining by 19.5 million shares, -56.5%. In April 3.8 million short shares were covered, -20.0%, as short sellers prepared for positive Facebook earnings results after a slew of unfavorable news stories centering around user data and privacy concerns.
Facebook is the second largest short in the Interactive Media and Services Sector even after a year of short covering. Facebookâ€™s 40% rally this year has forced some short sellers onto the sidelines. Short sellers are down $1.22 billion in mark-to-market losses, -33.08%, in 2019 which virtually wipes out 2018â€™s year-to-date mark-to-market gain of $1.24 billion, +26.29%. Short sellers started covering their positions in mid-January as Facebookâ€™s stock price started to pop and have continued throughout the year. Those that covered early were able to realize most of their 2019 profits, while those that have hung on to their positions are staring at empty wallets.
If Facebookâ€™s monthly active users and daily active users increase on a quarter to quarter basis ongoing advertising revenues may not be adversely affected by Mark Zuckerbergâ€™s and the social networks security, privacy and censorship\policing issues. Even if earnings suffered in the short term, user growth would more than offset moderate revenue slippage.
We are seeing continued short covering today, if Facebookâ€™s stock price continues to rally after a strong earnings report expect even more short covering in the future.
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Managing Director Predictive Analytics, S3 Partners, LLC
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