Crowded GoPro short sellers may soon face squeeze

Reuters News
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Posted: Feb 04, 2016 1:37 PM

By Noel Randewich

SAN FRANCISCO (Reuters) - GoPro's fall from grace has created a rush by traders to short the camera maker's stock, but they may soon face a squeeze as institutional shareholders sell their shares after six months of declines.

GoPro's troubles worsened on Wednesday when it forecast current-quarter revenue well below analysts' estimates, adding to a string of disappointments by a company that a year ago was a Wall Street favorite.

Its stock dropped 7.5 percent on Thursday to $9.88.

Short interest in GoPro increased to 25.7 percent of its outstanding shares in mid-January from 23.9 percent in mid-December, according to Nasdaq data.

"All the monster hedge funds have their positions set. Now it's everyone else scrambling to pick up what they can," said Ihor Dusaniwsky, managing director of research at S3 Partners, which sells securities lending data and advises investors.

With the supply of shares for borrowing already low, Dusaniwsky warned that he is seeing early signs of institutional shareholders recalling and selling shares they had previously loaned to short sellers.

Short sellers borrow shares and then sell them, hoping to buy them back at a lower price to make a profit. If the lender unexpectedly recalls those shares, the short seller must find a new lender or, if that is not possible, buy the shares back and potentially lose money.

"We're getting to that point right now with GoPro," Dusaniwsky said.

GoPro's stock has fallen 84 percent from record highs in August. It recently traded at 17 times expected earnings, a bit above rival Garmin, at 15 times earnings.

(Reporting by Noel Randewich)