- Twitter shares fell yesterday, dragged by news of a class action lawsuit being filed against the company.
- Twitter shares may be overvalued, but the stock has momentum on its side.
- With short interest declining further to 6 month lows, don't short Twitter stock right now.
Shares of San Francisco, California-based Twitter (NYSE:TWTR) fell nearly 4% yesterday, after a class action lawsuit against the company was made official. While some investors might see this as a shorting opportunity, it might be best to keep away. Following the debut of its NFL live stream, the stock has momentum on its side. What's more, the shorts are fleeing Twitter. And with short interest now at near 6 month lows, you might not want to short Twitter stock right now.
Why Twitter Shares Fell Yesterday
Twitter shares fell nearly 4% yesterday, dragged by the announcement of a slew of class action lawsuits being filed against the company. The first announcement on Saturday, 17 September, saw Twitter shareholder Doris Shenwick sue the company for “materially false and misleading statements”. Since then, law firms seem to be piling on to the sentiment, with firms like Levi & Korsinsky LLP, and Goldberg Law PC joining the fray.
Also Read: Don't Buy Twitter Inc Stock For Now
While such lawsuits can be an expensive distraction, seldom do they gain much traction. Another factor that might have contributed to the fall was a report that Twitter "would lay off some employees and halt engineering work at one of its development centers in India".
While such announcements are seen as signs of weakness and uncertainty, investors should note that the move involves less than 20 employees who came on board following Twitter's acquisition of ZipDial, and form a small fraction of Twitter's headcount of nearly 3,900 employees.
The Shorts Are Fleeing Twitter Inc Stock
Short interest in Twitter has declined further, based on latest short interest data as of 31 August, which was released a week ago. Short interest in Twitter shares declined by 8.7% to just over 51.1 million shares. That's the lowest it's been since March, when short interest stood at 49.5 million shares.
What's more, short interest as a percentage of Twitter's total float is at its lowest in almost a year. Float refers to the number of shares that are available for public trading, and excludes restricted stock units and shares that are under lock-in post IPO. Since Twitter's share count has been increasing on a constant basis, its total float has expanded as well.
Short interest currently stands at just over 8.1% of Twitter's float, the lowest it's been since September last year, when the company had a short interest of 40.4 million shares, representing 7.36% of its total float.
Twitter shares have been extremely volatile over the last couple of months. With buyout rumors floating every now and then, Twitter shares have gyrated furiously, giving shareholders nightmares. Nonetheless, the stock is still up over 30% since its lows in June 2016, and based on the recent short interest data, Twitter shares seem to have escaped the bear grip for now.
Twitter Stock Has Momentum On Its Side
Twitter shares shot up nearly 4.5% on Friday, 16 September, following the debut of its NFL live streaming. Reports suggest that Twitter live streamed its first NFL game to over 2.1 million viewers. The financial impact remains to be seen, but it's evident that Twitter is getting the eyeballs, at the very least.
Twitter's reach of 2.1 million viewers translates to over 13% of the total 15.7 million viewership across platforms, which is decent for a start. This is one of the first of many popular sports events Twitter is scheduled to live stream. Other than the NFL, twitter has live streaming deals with the NHL (hockey), the MLB (baseball) and the NBA (basketball) among many others. We looked at Twitter's live streaming deals in detail in our previous post. Given the slew of live streaming deals Twitter has signed, the excitement is understandable.
Twitter's decision to share revenue with video creators on the platform also met with a similar response, with the stock jumping by about 4.5% on the day following the announcement. There's also some excitement around the fact that Twitter is tweaking its 140 character limit to exclude images, GIFs, polls, etc and is expected to stop counting '@name' tags in the future.
Given the kind of momentum that's been driving Twitter shares, the stock could very well shake off the negativity.
Summing It Up
Twitter shares fell sharply yesterday, following the announcement of a slew of class action lawsuits against the company. While some investors might see this as a shorting opportunity, the stock is best left alone. Following the debut of Twitter's NFL live stream, the stock has momentum on its side. And with short interest declining further to near 6 month lows, the negativity could evaporate quickly.
It's hard to predict what Twitter stock will do next, but you might not want to short the stock right now.