Reuters / Brendan McDermid
- Roku has tripled since going public in late September, spiking on Monday after reporting sales that beat Wall Street estimates.
- Traders betting against Roku have lost more than $100 million since the company's initial public offering.
When it comes to television these days, it never pays to bet against the cord-cutters.
Traders in newly-public Roku are finding that out the hard way.
They've piled into wagers against the company as the stock - which started trading on September 27 - has tripled in price. That surge to $42 a share from the initial public offering price of $14 has resulted in $108 million in mark-to-market losses for short sellers, according to data compiled by financial-analytics firm S3 Partners.
That includes a $48.5 million loss on Monday alone as Roku shares climbed as much as 28%, riding the momentum of a better-than-expected earnings report, S3 data show. With sales that beat Wall Street estimates, Roku is giving investors confidence it is making progress on its plan to evolve from a commodity hardware company into an advertising business.
While short interest - a measure of bets that a stock will fall - has multiplied since Roku's IPO, it has stayed surprisingly unchanged throughout most of November. To S3, this means that traders haven't been taking profits on short positions, which in turn suggests that the recent move higher is due to outright bullish sentiment. That's a good sign for a company like Roku, which is navigating a crowded field of digital competitors.
And if you're looking at Roku's elevated price and thinking now's a good time to get short, you might be sorely disappointed. S3 points out that the number of shares available for lending is starting to dwindle, which is driving up costs.
"If shorts begin to eat into this tight inventory and increase their positions we can expect stock borrow rates to increase quickly," Ihor Dusaniwsky, managing director of predictive analytics at S3, wrote in a client note.
Trader attention will now shift to full-year 2017 results. Roku says it's now on track to bring in $500 million in sales this year, which would be a 20% increase from 2016. If they're unable to achieve that, it would lead to relief for struggling short sellers.
For reference, here's a breakdown of Roku short positions:
