Shares of consumer reviews website Yelp Inc recorded their biggest one-day advance on Wednesday, the day insiders were free to sell their holdings, surprising investors.
The stock rose 20 per cent to $21.84 with more than six-and-a-half million shares traded, putting it on track for its busiest day since its debut in March. Shares rose as high as $22.89, and the rally briefly bumped the stock back above its debut price of $22.01 a share.
Part of the stock's rise may be related to the relatively high percentage of shares being borrowed for shorting purposes. About 97 per cent of the shares available for borrowing for short bets were borrowed. This only amounts to about 4 per cent of the total shares outstanding, according to Data Explorers, a Markit company.
"I haven't seen a good old-fashioned tech short-squeeze in a long time, but this has all the behavior of that," said Mike Shea, managing partner and trader at Direct Access Partners LLC in New York.
About 53 million shares were eligible for sale at the end of the lockup period. Similar ends to restrictions on selling by insiders and underwriters have pressured other technology companies. Facebook Inc was hit hard after its initial lockup period ended two weeks ago.
"People felt it would be a lock - pun intended - that you'd see the stock get hit when the lockup ended, and that clearly didn't happen," Shea said. "So now everyone is running for cover."
With the stock shooting higher, shorts may have been forced to cover their bets to avoid the short squeeze that costs them more money, and apparently added to a sharp upward movement in a stock's price.
The advance comes in contrast to other social media stocks, including Facebook and Groupon Inc, both of which have struggled to convince investors that they will be able to monetize their user bases. Facebook, in particular, faces questions over its mobile platform.
Yelp, in comparison, earlier this month raised its revenue outlook and posted second-quarter earnings and sales that beat expectations as it signed up more advertisers and expanded into new markets.
"There's a different mentality for Yelp than Facebook, and I'm not surprised that having a bigger float of shares is interesting buyers today," said Todd Schoenberger, managing principal at the BlackBay Group in New York.
Facebook, in results released last month, posted a dramatic slowdown in revenue growth and alarmed investors by declining to give financial forecasts. When the social media company's lockup ended last week, company director Peter Thiel cashed out most of his stake, selling about $400 million of shares.
Groupon similarly disappointed in its results, contributing to a sell-off that put the provider of daily deals off almost 84 per cent from an all-time closing high reached in November.