Facebook (FB) remains among the top-10 shorted stocks in America ahead of its earnings release.
The bets against Mark Zuckerberg's social media empire have not subsided despite registering an almost 20% slide already in 2018 and an over 35% drop from its 52-week high.
So you bot the dip on $FB after $120bn was wiped out on 2Q earnings.... and now your down -17% SINCE that day after.— Tim Seymour (@timseymour) October 29, 2018
According to S3 Partners, a financial technology and analytics firm, Facebook has attracted $4.9 billion in short interest, bolstered by 2.9 million shorted shares in October alone.
"This week the S&P 500 declined by 3.9% while the FAANG stocks declined by 4.7%, an 18% outperformance on the downside by the FAANG stocks which supports the theory that a significant amount of FAANG short interest is a hyper-charged Beta hedge for many portfolio managers," a report published on Monday reads.
The write-up adds that Facebook was the highest returning stock for short-sellers amid its pullback this year.
Ahead of third-quarter earnings Tuesday after the the close, the market is expecting $1.47 in earnings per share and $13.8 billion in revenue as key measures to prove shorts wrong.
Given the company's abysmal second-quarter release, a beat on these expectations will likely be vital.
On a positive note, expectations for the company are tempered a bit given the down second quarter and might offer an easier bar to clear for the Menlo Park-based company. Earnings per share were estimated at $1.74 for the second quarter, nearly $0.30 above the new Street estimate for the third quarter.
Some see the tempered expectations for Facebook as still to high.
"On the one hand you have to look at Pew Research that says that Americans use of social media has effectively plateaued," GVA Research CEO David Garrity told CNBC. "We're still in a situation where the Street's expectations for [FAANG] names are too high."
Shares opened down again on Tuesday, adding to pain for shareholders and pleasure for short-sellers, but have since seesawed between modestly positive and slightly negative in anticipation of earnings.
The company's earnings release Tuesday will prove a pivotal point to decide whether shorts can keep gaining or if Zuckerberg can turn the tide and relieve some shareholder stress.