Shorting social media?

Sohaib Athar is an "IT consultant taking a break from the rat-race by hiding in the mountains with his laptops.” On May 2nd he tweeted, “Uh oh, now I’m the guy who liveblogged the Osama raid without knowing it.” We do not wish to lower the tone but it is remarkable that social media has yet again been center stage at such a newsworthy event. We look at investor sentiment in Twitter investors Digital Garage (TSE:4819), as well as makers of airport security scanners, L-3 Communications (NYSE:LLL) and Smiths Group (LSE:SMIN). Salesforce (NYSE:CRM) has made a social media acquisition this week so also worth a look.

Japan’s Digital Garage must be delighted to have invested in Twitter in August 2009. The company is also in a joint venture to offer Twitter for Japan’s mobile phone users in their native language. This $1bn company has seen its share price rise 100% this year. Short sellers have been active here with two thirds of the available supply short as recently as March. However, short interest has recently fallen right back to 1.5% of shares outstanding. Negative sentiment is not surprising given that revenue fell by three quarters in 2010 and that it remains loss-making.

The death of Bin Laden once again illustrates the social impact of Twitter, following its prominence earlier this year by revealing what was going on amid the turmoil in the Middle East. Who needs correspondents or diplomats when the whole world is your witness? “Helicopter hovering above Abbottabad at 1AM (is a rare event).” Then this, minutes later, “A huge window shaking bang… I hope it’s not the start of something nasty.” The Navy Seals were carrying out their mission and the Twitter world was listening.

Security will continue to be of paramount importance following the shooting of Bin Laden which has ramifications for the makers of airport body scanners. AIT (Advanced Imaging Technology) are the full body scanners which focus on our every inch as we pass through security (our modesty is hidden only by an “algorithm”).

A few hundred are in existence now and the US alone plans to move to 1,000 of them. Despite this, demand to borrow L-3 Communications is gently rising and is near a one year high at 2.5%, yet this is only the index average level. The UK’s Smiths Group missed out on the deal with the US Government but remains a player in this market. Short sellers are not taking any chances here with almost zero short interest.

Elsewhere in social media land, Salesforce has just spent a rumored $326m (8x earnings) on Radion6. This Canadian social media monitoring platform has only been going since 2006 and will be integrated immediately across all of Salesforce’s products. Short sellers have returned, increasing their stake from 6% to 9% of total shares in recent weeks.

Can you short Facebook and go long Twitter? CNBC speculated that Goldman Sachs could be the only firm to do the former. Oh to be a fly on the wall. Now you can be. Anywhere. Twitter.