Photographer: Freya Ingrid Morales/Bloomberg

Hedge Funds ‘Call the Shots’ on Pandora

Updated on
  • Shares have lost total $5.7 billion on past six earnings days
  • Pandora has fallen even as earnings have matched estimates

For the past six quarters of earnings, Pandora A/S has delivered on market expectations. The shares often start higher on the good news. But at some point, hedge funds inevitably step in, and the selloff starts.

On Tuesday, it happened again. The Danish jewelry maker opened almost 6 percent higher. Then, the stock suddenly turned, falling more than 6 percent. Pandora ended the day down 3.5 percent.

“It’s the hedge funds that are calling the shots,” Mads Zink, head of equity sales at Danske Bank A/S, said by phone. “The earnings report was actually fairly good and could as such have offered some relief to the market.”

Hedge funds are now short about 12 percent of Pandora’s stock, according to data provided by IHS Markit. That’s up from just 1.5 percent one year ago. Speculation against the Copenhagen-based company has centered on its U.S. performance, where shopping-mall traffic is on the decline.

Read more: America’s ‘Retail Apocalypse’ Is Really Just Beginning

Short positions are held by Coatue Management, AQR Capital Management, Maverick Capital, Lone Pine Capital and Third Point, according to data compiled by Bloomberg.

U.S. sales made up a fifth of Pandora’s revenue in the third quarter and grew by 4 percent, the company said on Nov. 7. But the U.S. result was helped by Pandora’s decision to introduce its Christmas collection already in the beginning of October, which is earlier than last year, it said.

On average over the past six quarters, Pandora’s net income has beaten analyst estimates by 1.1 percent, while revenue has missed estimates by 1 percent, according to data compiled by Bloomberg. If you add up the share price declines that Pandora investors swallowed on each of those earnings days, it comes to a combined 36.6 billion kroner ($5.7 billion), or almost a $1 billion in losses every earnings day for the last 1 1/2 years.

Danish media have criticized the company for what they characterize as a less-than-stellar communication strategy. On Thursday, one of the country’s biggest newspapers published a double-page spread listing investor grievances with Pandora. Chief Executive Officer Anders Colding Friis told Jyllands-Posten it’s not his job to comment on the share-price development.

Values are indexed, Nov. 2016 = 100

Meanwhile, analysts are still overwhelmingly advising clients to buy or hold on to their Pandora shares. Of the 18 Pandora analysts tracked by Bloomberg, only one is telling clients to sell. Analysts on average predict that the share price will rise more than 50 percent in the next 12 months, making Pandora Europe’s second-most undervalued stock.

According to Zink at Danske, hedge funds will probably continue to dominate the news flow on Pandora. The company on Tuesday delayed its capital markets day until Jan. 16 from Dec. 13, meaning investors will have to wait an extra month before management has a chance to shape market views.

Hedge funds “have dominated sentiment for some time and will probably continue to do so going forward,” Zink said. “And now they are free to set the agenda again until Pandora holds its capital markets day.”

— With assistance by Janice Kew

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