UBNT - Big short increase

Looks like the short interest increased significantly for UBNT to 10.4M shares as of 9/29! Over the last year, shares short have been really high, ranging from 6.6M to 9.9M. After earnings in early August, shares short went down from 8.0M on 7/31 to 6.8M on 8/15. Citron and friends drove the short interest back up 7.5M on 9/15, which was the last trading day before the Citron report was released on 9/18. As of 9/29, short interest shot up 39% to 10.4M, which is the highest it has been all year. If UBNT did use up most of its recent $150M buyback authorization, then I expect the share count to have declined from 81.5M to around 78.7M (see my logic in the first paragraph of my long post here: http://discussion.fool.com/why-i-bought-more-ubnt-32844489.aspx). Pera still has 56.3M shares and with an assumed outstanding shares of 78.7, the float would be around 22.4M shares, meaning the 10.4M shares would represent 46% of the float. We will know in early November how many shares the company actually bought back to verify the true outstanding shares. The high short interest makes sense as I have been seeing posts on StockTwits that the interest rate to short UBNT has been increasing and is now over 17%. It was 15% a couple of weeks ago, so the short interest may be even higher as of today. To me this is great news as the shorts will need to buy back in order to cover their short positions. If earnings are better than expected (and analysts expectations are still low despite the company reaffirming guidance at the high end of the initial range given), we could see a short squeeze and quite a pop in shares! I’m looking forward to earnings…

http://www.nasdaq.com/symbol/ubnt/short-interest

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Note that the new short shares of almost 3 million shorted between 9/18 and 9/29 when the price ranged between 47.78 and 58.57, so with today’s closing price of 56.17, the vast majority of these short positions are losing money. There may be some margin calls coming when earnings are released and the stock price going up would cause a squeeze and force more shorts to cover, driving the price that much higher. Part of the 25% increase in early August during the last earnings release would have been due to shorts covering, which shows up in the short interest declining from 8.0M on 7/31 to 6.8M on 8/15. With 10.4 million shares now short combined with a 17% interest rate to maintain the short position and losing positions, we could see a healthy squeeze coming soon if earnings are good. I may try to pick up some more UBNT options before earnings are announced in a few weeks.

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wouter, you've gone and made me decide I need to look up that SEC rule about the amount of shares that a company can buy back in a single day based on average trading volumes. 
I'm guessing you already saw my posts about recent UBNT volumes. 

Here's a link for any other reader's reference:
[http://discussion.fool.com/regarding-ubnt-citron-buy-backs-and-v...](http://discussion.fool.com/regarding-ubnt-citron-buy-backs-and-volume-32855217.aspx?sort=whole#32859187)

Now for the SEC rule summary.........oh wait, I see that it was your post linked above that had mentioned the SEC rule (10b-18). The limit is 25% of average daily volume, 
so UBNT could have been buying back 100,000-ish shares per day most days.....even more thanks to the volumes provided by Andrew Left.

A link to the SEC rule:
[https://www.sec.gov/rules/final/33-8335.htm](https://www.sec.gov/rules/final/33-8335.htm)
Looks like the repurchased shares don't count in the average daily trading volume calculation, which appears to be calculated for a 4-week period. 

Since it was an easy tweak to the spreadsheet I had made for my other thread, here are some 20 day rolling average trading volumes and associated maximum daily UBNT repurchases.

Date	4-week average daily volume	Maximum allowable share buy-back (simplified)
8/30/2017	 602,750 	 150,688 
8/31/2017	 491,200 	 122,800 
9/1/2017	 460,250 	 115,063 
9/5/2017	 474,400 	 118,600 
9/6/2017	 473,450 	 118,363 
9/7/2017	 476,000 	 119,000 
9/8/2017	 485,850 	 121,463 
9/11/2017	 493,450 	 123,363 
9/12/2017	 510,100 	 127,525 
9/13/2017	 540,200 	 135,050 
9/14/2017	 585,600 	 146,400 
9/15/2017	 654,650 	 163,663 
9/18/2017	 1,229,450 	 307,363 
9/19/2017	 1,370,850 	 342,713 
9/20/2017	 1,430,300 	 357,575 
9/21/2017	 1,455,250 	 363,813 
9/22/2017	 1,501,900 	 375,475 
9/25/2017	 1,536,050 	 384,013 
9/26/2017	 1,600,350 	 400,088 
9/27/2017	 1,617,350 	 404,338 
9/28/2017	 1,619,600 	 404,900 
9/29/2017	 1,593,500 	 398,375 
10/2/2017	 1,584,950 	 396,238 
10/3/2017	 1,580,350 	 395,088 
10/4/2017	 1,590,850 	 397,713 
10/5/2017	 1,606,250 	 401,563 
10/6/2017	 1,592,450 	 398,113
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Hi Joel, thanks for posting the max volume that the company could buy back based on the 4 week average volume. Based on the 8K that announced the additional $100M share buyback authorization, the open authorization as of September 18 was $127.6M. Assuming an average purchase price of 55, the company could have bought back 2.3M shares in total. Given that the max shares available for repurchase since 9/18 is well over 5 million, they could have completed the full repurchase by now. This could explain the increase in share price despite a lot more shares being shorted.

If they did complete the full buyback, then expect EPS for the rest of the year to be slightly higher than management initially considered when the FY2018 guidance was provided (at that time there was only a minimal $1.5M in legacy buyback authorization still open, so they would not have likely considered buybacks in the EPS guidance). Given that the majority of the buyback would occur in the last couple weeks of the quarter, it should not significantly impact EPS for this recently completed quarter, but would do so going forward. To calculate the quarter’s EPS, you would divide by the weighted average shares, instead of using the ending shares outstanding. This make sense given that earnings are earned over the full 3 month period. This means that there would be a small positive impact on EPS for this upcoming earnings announcement, but a bigger impact on the EPS going forward. If we use the assumed lower shares outstanding after the buyback and apply it to the full year guidance of $4, it would increase it to $4.14. Note that it would be slightly less of an impact as Q1 won’t have the full benefit of the new share count. Either way, it’s not a huge impact, but every penny of EPS helps.

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Wow, only 134,000 shares of volume today as of 3:50 pm, that is just barely more than that one block at the end of the day yesterday or the block the day before at 3:17 pm.

Between Pera’s shares and the short interest, do Foolish folks hold almost every other share?

I think total volume yesterday finished at about 167,000, only about 1/3 or 1/4 “normal” volume since August outside of the huge increases due primarily to Citron…that makes me think that the short squeeze will be coming quite soon.

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