Short interest in LinkedIn and wider recruitment sector

Last week’s IPO of LinkedIn (NYSE:LNKD) drew the inevitable comparisons to the dotcom bubble as investors scrambled for a bite of social media. LinkedIn competes primarily in the social networking and the recruitment services markets and has grown from a tool used by recruitment companies to a potential competitor. We use securities lending data to identify early investor sentiment towards LinkedIn and recruitment companies including Monster Worldwide (NYSE:MWW), Michael Page International Plc (LON:MPI), Hays Plc (LON:HAS) Hudson Highland Group (NASDAQ:HHGP) and RenRen (NYSE:RENN).

First up, we are able to identify early securities lending sentiment in LinkedIn ahead of public filings from the US stock exchanges. With a small free float of only 9 million shares, or about 10% of the company, we initially see over 60 smallish transactions accounting for around 0.7% of the total shares outstanding on loan or 13% of the free float. This represents almost all the shares that are available to be borrowed, with the majority of the supply consisting of shares sourced within the prime brokerage arena. It should be noted that in the early trading days following an IPO, brokers often borrow stock to manage settlement liquidity. By comparison, short interest in RenRen, China’s leading social network, which recently listed in New York has peaked at 2.2% of the total shares outstanding on loan with more than two thirds of the lendable supply currently out on loan.

Turning towards the recruitment market, Monster Worldwide, Inc has pioneered the online model for over a decade and at the height of the dotcom bubble its shares traded at USD 150 (before a stock split) compared to its current stock price of USD 15. Monster Worldwide last year generated USD 914 million revenue, which is nearly four times that of LinkedIn. Its share price held steady throughout LinkedIn’s market debut and short sellers have been covering their short positions recently reducing their holdings from 16% to 11% of the total shares outstanding on loan since February (orange line).  Long only investors have also reduced holdings since mid-April by 10% (pink line).

Michael Page International Plc, the U.K.’s second largest professional recruitment consultancy, reported positive full year earnings earlier this year. Similar to Monster worldwide, its share price was little changed last Thursday but has fallen 3% since then, raising the question as to whether or not any of this decline has been in response to a perceived threat from LinkedIn. Bloomberg reported that the U.K accounted for 28% of Michael Page’s gross profits and that its focus was on Asia, the Middle East and Latin America. Short sellers covered their positions since December from 5% to 2.5% of total shares outstanding on loan after the share price continued its bullish run. The stock may be subject to some dividend arbitrage given its recent dividend.

Hays Plc, also a U.K. listed stock has seen its share price fall by 13% since the start of the year. Short interest over this period has been relatively flat, currently standing at 4.2% of total shares outstanding on loan. Perhaps recruiters are not threatened by LinkedIn and instead consider LinkedIn and social media as tools to broaden their reach?

An RV screen of the global Business Training Employment Agencies subsector shows that the sector has an average short interest of only 1.27% of total shares outstanding on loan. US listed recruitment stocks have the highest short interest globally with the exception of Hays Plc. Hudson Highland Group, which reported 46% of its gross margin from European markets, as of December 2010 has seen its share price fall by 25% since February. However, short sellers have held steady of their positions at 4% of total shares outstanding on loan. Additionally, almost 40% of total shares outstanding available to be borrowed.