Thoughts On The OpenTable ($OPEN) Purchase By Priceline ($PCLN)

By: ispeculatornew
Date posted: 06.16.2014 (3:00 am) | Write a Comment  (1 Comment)

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Unfortunately, as much as I would like to open a new trade today, my 7 live trades are actually a decent % away from being closed and my average trade return slipped a little but the overall portfolio return remains at 17.46% as of Friday’s close. Today, I wanted to take on a comment that I got last week:

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In case you missed… This Happened!!

pcln

OPEN Chart

OPEN data by YCharts

You can imagine that anyone holding a short position in OPEN would have a very bad day. I have indeed been short OPEN a few times. I certainly agree that this is a risk and while you could say that I was “lucky” to not have an existing position, I like to think there was more involved. If you remember well, I had discussed the idea of OPEN being acquired although I personally thought it would be a better fit with TRIP. I do still think OPEN was a solid purchase by Priceline (PCLN), one of the best internet names out there and a company with incredibly strong management. If a rather blue, conservative company like Priceline made this move, it sends out a strong signal to the rest of the industry:

-Priceline is not content with its (dominant) position in car/hotel reservations
-It is willing to pay a significant premium for a unique asset that can extend its global presence

I will certainly spend more time looking into the move from Priceline’s perspective, but I do like the move.

Am I Being Wreckless By Shorting Pandora (P)?

I can certainly see some similarities between Pandora and OPEN. There is certainly a risk that Pandora could end up being acquired and although there are few rumors about it, given the importance of music as a play and the recent Beats purchase by Apple, it’s certainly something that could happen. It becomes a risk vs. reward play. While OPEN was the dominant player in its industry with very little real competition, Pandora does face competition. That means the premium that a company like P could ask for should be smaller.

I also think that shorting Pandora is a good risk-reward play because it is a company that continues to struggle, years after its launch, to become profitable. As is the case for many cloud-based companies, it is facing competitors that care very little about the profitability of music which will continue to make very difficult for a company like Pandora and makes me very very skeptical of its current valuation. So yes, takeover is a risk, it’s the main one but it is one that I am willing to take.

It Goes Both Ways

If you remember, I did get burned by my short Rackspace (RAX) position, but I’ve also had some very good trades. The idea is simply to avoid stocks that I’m very fearful of being acquired (as of right now – WebMD, BBRY, RAX, etc) and hope that some of my long positions encounter a similar fate.

Do any of you short stocks? Did you ever get burned?

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1 Comment

  1. Comment by Johan Lindén — June 16, 2014 @ 9:41 pm

    Solid reasoning. Thanks for answering!

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