Snap (SNAP) Shorts Aren't Covering ... Yet

Snap (NYSE: SNAP) shares surged 40 percent Wednesday after reporting better than expected earnings, trapping short sellers betting weakness in the stock will continue. Prior to results, shares were on a steady decline after trading as high as $29.44 immediately following its IPO last year, closing yesterday at $14.06.

The shorts appear to be waiting for the stock to pullback before adjusting their positions, said Ihor Dusaniwsky, Managing Director of Predictive Analytics at financial analytics firm S3 Partners.

"...with the pop in its stock price basically coming at the open and not allowing shorts to close out their positions any near yesterday’s close, shorts may be hoping for a pullback before they start licking their wounds and realizing their losses," said Dusaniwsky.

"Shorts are down over $550 million in mark-to-market losses today, so I would assume there will be some short covering in the $1.4 billion of SNAP shorts over the next few days."

Meanwhile, many Wall Street analysts have already thrown in the towel. This morning there were four upgrades to Hold/Neutral from Sell/Underweight, along with a couple of upgrades to Buy/Outperform from Neutral.

Not everyone is convinced now is the time to be long the stock.

"Our conversations with Hedge Funds and Long Only’s last night indicate the buy side is not so readily impressed just yet, even though fast money got involved on the long side for a quick trade after the print," said analyst Jahanara Nissar of Lynx Equity. "The upcoming lock-up in March (of ~50M shares of 1.4B diluted shares) may create some selling pressure and valuation is still high."

You May Also Be Interested In