Is Kazaa/ATRN’s Entire Public Float Sold Short?
An interesting development has come together over the last three or four days. First of all, we received correspondence from three Groove participants updating us on their holdings, with two of them adding a substantial number of shares. None of the three are included in the 1.13 million float that can be calculated from the 10k/a filed in May, as none of them are “insiders” or “5% shareholders”. Individual investor A owns 215,0000 shares, Hedge Fund A owns 190,000 shares and individual B owns 100,000 shares for a total of 505,000 shares. This reduces that 1.13 million float in the 10k/A down to about 600,000 shares. We further note that former ATRN director Robert Ellin took down another 150,000 shares over the last three weeks, which would further reduce the float down to the 450,000 share range. Of course, this assumes that the insiders listed in the 10k/a are still holding the same number of shares they listed in the 10k/a, but we have to think that if they did not sell in the really difficult period in April where the stock fell so far (which would have been reflected in the May 10k/A filing), they would surely hang on now that the leadership transition is complete, iPhone/Android Apps are close to release and Wall Street is starting to take a closer look at all things related to streaming music companies. We compiled these figures to compare with what we saw to be a large and growing short interest in ATRN that started on the day of Pandora’s IPO. After the close on Friday, our suspicions were confirmed,as the short interest was reported at 415,000 shares. This figure indicates that about 90% of what appears to be the “true public float” has been sold short. Let me make sure that all reading this got that, its not a typo. These figures that we believe to be correct indicate that the true public float is about 450,000 shares and the Nasdaq reported short interest is over 415,000. We actually think the short interest is even higher than that, as the stock has fallen precipitously over the last few sessions on very low volume and it appears that short selling may have been a significant contributor to that decline. Also, we know that there are holders out there beyond these three that hold ATRN shares that intend to hold them long term, further reducing the number of shares available for purchase.
To have a stock with such a small float and such a large short interest is quite unusual, a truly extraordinary imbalance. With all the potential good news Kazaa could release and the media’s growing fascination with the mobile/streaming music space, it is amazing that short sellers would blindly pile on like they did following Pandora IPO. This might be a good time to put your shares up for sale at $9.99 (or higher if your broker allows it) so that they are “not available for hypothecation” and cannot be used as the other side of a short sale. Any uptick in buying interest could spark a short squeeze of significant magnitude here and there may not be enough shares to go around.
One More Thing – speaking of the “potential good news”, thought I’d share a quick laundry list –
1) Facebook Music Dashboard – this will bring on demand streaming music subscriptions to the mainstream, which will benefit Kazaa tremendously, maybe even more than any of the other FIVE companies that have the “on demand” licenses.
2) iPhone App / Android App – should be coming very soon, maybe in days
3) Name change to Kazaa – finally we can use the name that 800 million people will recognize instead of the made up word Atrinsic
4) Kazaa Radio – OK, its been live for several weeks, but the company hasn’t announced it and its a big deal. Maybe they wanted to give Pandora their week in the sun before they announced that Kazaa Radio is the same thing, but with 5 million songs in the rotation instead of Pandora’s 800,000.
5) Industry News – won’t be long until Spotify launches in the US, which will bring a huge amount of media spotlight onto streaming music generally, but more importantly onto the distinction between the “radio streamers” like Pandora and the “on demand” streamers, like Kazaa. Since Kazaa is the ONLY PUBLICLY TRADED on demand streaming music play, this will surely bring more investors into the picture.
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