2014 has been a superb year for short sellers in Quindell (LSE: QPP) and Blinkx (LSE: BLNX). That’s because shares in the two companies have fallen by 76% and 88% respectively, thereby potentially making them hugely profitable trades for investors going short in the stocks.
The identity of a major short seller has been sought by investors in the two companies throughout the course of 2014. And, it is now being reported that the identity of the short seller is known, with a $6.5 billion hedge fund called Tiger Global apparently being the holding company behind the short sales.
Of course, the reason for the difficulty in ascertaining the apparent identity of Tiger Global has been its use of shell companies based in the Cayman Islands. These have been used to short a number of European stocks in recent years (including Quindell and Blinkx), with the practice of using such companies to conduct short sales being completely legal under European disclosure rules. And, with significant short selling taking place in both companies, it could be argued that it has quickened the demise of both companies’ share prices during the course of 2014.
What Next For Quindell And Blinkx?
While knowing the identity of the short seller may be of interest to investors in Quindell and Blinkx, it does little to change their current situations. Indeed, both companies are experiencing highly challenging periods at the present time.
For example, Blinkx’s business model is changing rapidly as a result of external factors. It means that the company is being forced to transition away from desktop advertising and towards mobile advertising at a rapid rate, which is inevitably causing a decline in the near-term outlook for the business. Certainly, Blinkx has the capacity to make the necessary changes so as to adapt to changing customer demands, but in the meantime investor sentiment is declining rapidly.
In Quindell’s case, it needs a new management team after the resignation of the Chairman, CFO and Non-Executive Director, and is the subject of an LSE investigation into whether disclosure rules have been properly followed. Furthermore, confidence in the company’s ability to overcome these challenges and to also address long-held concerns surrounding the viability of the business (notably in terms of whether its cash flow is sufficiently robust) remains weak and, as a result, it could take some time for Quindell to ‘come out the other side’.
So, while knowing the identity of the short seller may be of interest to investors, it does not change the fact that Quindell and Blinkx are experiencing tough times as businesses that arguably would have led to share price declines in any case. As a result, the situation for investors in both stocks is little changed: they remain high-risk turnaround stories that could see further share price falls before any sustained pickup. As such, potential investors may wish to wait for more evidence regarding their future prospects as businesses before buying either company for their portfolios.
