Cloud computing platform Twilio Inc (TWLO) is up over 50% in 2019 as its year on year revenue growth continues to surpass expectations. 1st quarter 81% year on year growth topped its previous two strong quarters and 2nd quarter expectations predict virtually the same impressive results. While long shareholders gleefully accumulated a 467% return since the end of February 2018, short sellers continued to cut their positions in an effort to realize some of the profits they earned since its IPO in June 2106. As of February 1st, short sellers were up $103 million, +28%, in mark-to-market profits.
Short sellers continued to trim their TWLO exposure until the end of August, but for the last nine months they have been re-establishing their short positions. Since September 1st, shares shorted have increase by 7.4 million shares, +189%, even as TWLOâ€™s stock price rose 79%. TWLO short sellers have built up their positions even though they have incurred $566.5 million, -61%, in mark-to-market losses. Overall, TWLO shorts are down -$850.5 million in mark-to-market losses since its IPO.
The increased short selling in TWLO moved the stock to the number two spot in the most shorted stocks in the U.S. Interactive media & Services league tables. MongoDB (MDB) and Okta Inc (OKTA) also had increased short selling over the last nine months while Shopify short sellers covered over 6 million of their short shares, a decrease of $1.9 billion.
With TWLO short sellers building up their positions aggressively over the last nine months there seems to be a true divergence in TWLOâ€™s ability to continue beating analystsâ€™ expectations. Short sellers see the stock as walking a high wire, one small slip in their next quarterly results may result in a precipitous fall from grace and what they believe to be an â€śoverboughtâ€ť stock will tumble back down to more realistic price multiples. Over $1 billion worth of new short selling is betting that TWLO loses its mojo and comes back down to earth.
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Managing Director Predictive Analytics, S3 Partners, LLC
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