Short sellers target traditional book stores despite bid activity
The rise of the e-book has revolutionised the industry and traditional bookstores have struggled to adapt their business models. Last week’s revelation that Amazon now sells more e-books than traditional volumes was also accompanied by news that sophisticated buyers have acquired some of the struggling traditional retailers, looking for a bargain with hidden value. We use securities lending flow data to look at investor sentiment towards Barnes and Noble Inc (NYSE:BKS), Books-a-million Inc (NASDAQ:BAMM), HMV Group (LON:HMV) and Amazon Inc (NASDAQ:AMZN).
Barnes and Noble shares jumped 30% on Friday following the announcement of Liberty Media’s offer for 70% of the company. Despite being up for sale since August last year, the bid seems to have taken short sellers by surprise. The already heavily shorted stock has seen a build up of short interest since March, from 12% to 24% of the total shares, after the shares hit an annual low. With almost 80% of the lendable supply currently out on loan, this stock is hard to borrow. The Wall Street Journal reported that following Borders bankruptcy, Barnes and Noble’s bricks-and-mortar stores could thrive as the “last man standing”, given the expectation that e-books would not completely replace printed books. Some are speculating that the Nook e-reader is partially behind the Liberty Media bid. It has performed well, gaining almost a third of the e-book market share yet still lags Amazon.
Liberty Media Corp has been subject to bullish investor sentiment over the past year with the shares trading close to annual highs and insignificant short interest.
Barnes and Noble is not the only book retailer being snapped up by a visionary Billionaire. HMV announced that it has sold its Waterstone’s book chain to a Russian billionaire in a bid to strengthen its balance sheet. Although the share price has reached new annual lows and short interest remains very high, there has been some mild short covering since December, reducing short interest from 22% to 19% of total shares outstanding on loan. The stock remains amongst the most shorted in the FTSE and is heavily utilized, with 70% of the stock that is available to be borrowed out on loan.
Books-a-Million, Inc has a market capitalisation of only USD 70 million but runs a similar model to that of Barnes and Noble before it launched its e-reader, Nook. It owns over 200 retail stores in North America and also an online store. Although Books-a-Million offers ebooks and is obviously trying to keep up with the evolving industry, its share price has halved since last year. Short interest has doubled since February to an annual high of 7.5% of the total shares outstanding on loan. This stock is also hard to borrow with 60% of the lendable supply currently out on loan.
