Bets against Twilio climb thanks to fresh supply of shares

By Noel Randewich

SAN FRANCISCO (Reuters) - Bets against shares in Twilio Inc (NYSE: TWLO) have climbed in recent days, thanks in part to a recent follow-on stock offer that increased the supply of shares available to traders.

Twilio's shares were down about 5 percent in afternoon trading on Wednesday, adding to a recent sell-off in the San Francisco software company's stock following a June IPO and a meteoric rally. Short sellers attracted to Twilio's lofty stock price in recent months have ridden it lower and are showing no signs of relenting.

Twilio's software is used by large companies including Netflix (NASDAQ: NFLX), WhatsApp and Uber, allowing them to speak with and text customers without exchanging contact information.

After Twilio's stock hit a record high in September, short interest against it has increased by about 30 percent to about 7.5 million shares, equivalent to $250 million, according to S3 Partners, a financial analytics firm.

By mid-October, short sellers had borrowed virtually every share available in order to bet against the company, pushing the annualized interest rate they paid to the shares owners' up to 100 percent and temporarily putting a virtual stop to additional short positions.

Short sellers borrow shares and then sell them, hoping to repurchase them at a lower price and then return them to their owner. In the meantime, they must also pay interest to the owner.

Twilio on Oct. 20 sold an additional 7 million shares, mostly on behalf of existing shareholders, significantly increasing the number of shares available for lending and allowing short sellers to make new bets against the company.

Since then, the stock has fallen 22 percent, bringing Twilio's sell-off from the end of September to 50 percent.

"Shorts that couldn't get in before are now getting in," said Ihor Dusaniwsky, S3's head of research. "If the trend continues, in another couple of weeks you will be back up to a really expensive borrow."

Twilio is due to give its third-quarter results on Thursday. On Oct. 11, two business days after announcing plans for its follow-on share offer, Twilio reported preliminary third-quarter results that beat analysts' expectations.

Analysts are unusually cautious on Twilio, with just one recommending its shares and eight analysts rating the stock "hold", according to Thomson Reuters data. None recommend selling.

(Reporting by Noel Randewich; Editing by Tom Brown)

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