Roku short sellers getting killed as stock soars

Roku Inc. has boomed since its September initial public offering, more than tripling in value and costing short sellers more than $100 million as of Monday, according to an estimate from S3 Partners.

Roku ROKU, +28.45%  stock gained 29% to close at $42.71 Monday, following double-digit percentage gains Thursday and Friday in the wake of the company‘s third-quarter earnings results. Shares of the video streaming platform are up more than 200% from the $14 IPO price, with the S&P 500 index SPX, +0.10%  up about 3% in that time.

Monday’s gains cost short sellers about $48.5 million, according to estimates provided by S3 Partners head of predictive analytics Ihor Dusaniwsky, sending total losses since the IPO to $108 million.

Learn more about short selling here

“Short sellers who were looking for a post-IPO price reversal have been wrong in a big way,” said Dusaniwsky, whose firm specializes in financial analytics.

The spike on Monday was not due to a short squeeze, Dusaniwsky said, which happens when short sellers close positions on the price of a stock—usually the result of a positive development such as Roku’s third-quarter results. He says that long shareholders are bidding the price up and that the fee to borrow stock to short, while high, did not jump recently, a fact that would indicate a short squeeze.

See also: The numbers that sent Roku stock soaring after its first earnings report

“Shares shorted have increased since October, but have been steady in November—there is no short-covering in size in Roku that would explain Roku’s 130% price move,” Dusaniwsky said.

As of Monday, the total short interest is valued at about $212 million, and the total number of shares shorted ticked down to around 4.9 million, compared with 4.97 million on Friday, according to the data from S3. Roku is the sixth largest short by value in S3’s world-wide consumer electronics sector, behind companies like GoPro Inc. GPRO, -1.53%  and Garmin Ltd. GRMN, -0.41%  

Don’t miss: The man who gave us the DVR says Roku is the future of TV

Known for its devices that help users access streaming streaming-video services through their televisions, Roku executives say that the software that powers those devices—and the revenue from selling ads and sharing revenue on content deals—is where the business sees the most growth. Executives have said that they essentially view the hardware as a way of getting paid to acquire new customers, and are willing to sacrifice profit margins on the devices to acquire new customers.

The company also keeps hardware prices low in order to move more units, which depresses hardware revenue growth. In the third quarter, revenue grew less than 5% but the company sold 35% more devices compared with the year-earlier period.

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