Short selling data can help investors manage risk. Generally speaking, short sellers are sophisticated, high-conviction traders. If they’re targeting a stock, it can pay to approach that security with caution.
In this report, we are going to highlight some interesting short selling activity at Yalla Group Ltd (YALA:US). Yalla operates a social networking and entertainment platform that enables people in the Middle East and North Africa (MENA) who share similar cultural backgrounds to come together online. Its goal is to build the most popular destination for online social networking and entertainment activities in MENA. The company is listed on the New York Stock Exchange and currently has a market capitalization of $2.5 billion.
Yalla Group: Short Selling Activity
A look at short selling data on Yalla reveals a number of red flags for investors. The first is that short selling transactions have increased significantly recently. On 18 May, Yalla had 185 short selling transactions. That’s up from 146 transactions at the start of May and 72 transactions at the start of April.
Secondly, the utilization rate is very high. Utilization is the ratio of shares on loan to shares available for lending. It is essentially a measure of demand from short sellers. Currently, Yalla has a utilization rate of 99.5%. This tells us that demand for the stock from shorters is extremely strong right now.
Third, the cost to borrow Yalla stock is 23.7%. This is very high, which again, tells us that demand from short sellers is elevated.
Gotham City Research is Shorting Yalla
One short seller that is currently shorting Yalla stock is Gotham City Research.
In a series of tweets on 19 May, the short seller said that Yalla reminds the firm of Let’s Gowex (which went bankrupt in 2014) and Luckin Coffee (which filed for bankruptcy in 2021).
In its tweets, Gotham pointed out that Yalla is based in Africa, is listed in North America, and has a CFO and auditor in East Asia. “Some of you might see a unicorn. We see an ugly duck,” the short seller wrote.
Another short seller that is targeting Yalla is Swan Street Research. In a recent report, Swan Street stated that Yalla’s user metrics are inflated by five times. It also said that Yalla’s financial statements do not reconcile with economic reality.
“Yalla is a credible delisting candidate. We value Yalla at $1-2 per share, or Yalla’s IPO cash,” the firm wrote.
Putting this all together, we think caution is warranted towards Yalla stock right now. In our view, the short selling activity here looks very bearish.