As Muddy Waters bets against dLocal, here are the other fintech stocks short sellers are eyeing
by James · November 17, 2022
While hedge fund Muddy Waters revealed a bet against payments processor dLocal, other short sellers appear to be eyeing more fintech companies. At least 11 US publicly traded financial technology companies each have more than $500 million betting on a decline in their share price, according to data from S3 Partners. Short sellers profit when stocks fall. They borrow stocks to sell them immediately with a plan to buy them back when the price is lower and pocket the difference. S3 Partners examined 66 stocks in the FINX fintech ETF for CNBC Pro and found $15.25 billion in betting against the stock curve in total. Of these, the table below shows the 10 most shorted shares. Payment services providers Block and PayPal , cryptocurrency exchange Coinbase and online accounting platform Intuit each had more than a billion dollars heading towards their share prices. Short sellers target companies for several reasons. Some expect the stock to fall as they may believe the stock is overvalued. Others may see structural headwinds for a company before it is fully reflected in the share price. While Muddy Waters CEO Carson Block has alleged fraud at dLocal, there is no suggestion of any wrongdoing by any of the companies listed in the table above. DLocal responded after shares plunged 50.7% to $10.46 on Wednesday by saying Block’s allegations “contain numerous inaccurate statements, baseless allegations and speculation.” The company said via a statement on its website that it would refute the claims in the relevant forum in due course. Meanwhile, S3’s data also revealed that among FINX stocks, cryptocurrency exchange Coinbase saw the largest increase in short selling for the month to November 15. This comes despite a decline of around 80% in the share price this year. “Shorts maintained their exposure in this basket of stocks even though there was a marked mark-to-market decline in their shorted stocks – they did not short into a declining sector,” said Ihor Dusaniwsky, CEO of S3. The table below shows the five most shorted shares in November in terms of the number of shares sold. Coinbase had a total of 27.53 million shares – or 18% of outstanding shares – betting against the stock price. In total, short sellers placed bets worth $1.47 billion against the stock. However, according to FactSet data, the median price target of 24 stock analysts continues to show a potential upside of 43.4% for Coinbase’s stock. Christopher Brendler, an analyst at DA Davidson, with a bullish $70 price target on Coinbase, said that while the collapse of FTX was damaging, he expects Coinbase to gain market share. “Fortunately, COIN is not directly exposed and should benefit from equity gains and pricing power. While a knee-jerk reaction from regulatory backlash is another risk, clarity could help return investor demand,” Brendler said in a Nov. 15 note to clients. S3’s data also revealed that payment processing company Block, formerly known as Square, faces the largest dollar-value short interest. The fintech company, led by Twitter co-founder Jack Dorsey, has seen its shares fall 56.94% this year. It has attracted $1.87 billion in short interest through 4.99% of free float.
