CEO Describes What It's Like When Investors Bet Against You

Apr 9, 2015
Originally published on April 9, 2015 12:29 pm

The online furniture company Wayfair is now one of the most shorted stocks. Our Planet Money team talks to its CEO about what it's like to be running a company when some investors are betting on your fall.

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RENEE MONTAGNE, HOST:

Our Planet Money team has been looking into the world of short selling. Shorting a stock is the opposite of buying a stock. It's a bet that the stock will drop in value. In previous stories, we heard from some well-known short-sellers who were betting against companies. Today, we hear what it's like on the other side. David Kestenbaum talked with the CEO of one of the most shorted companies in America.

DAVID KESTENBAUM, BYLINE: Last month, we did a story listing the top 10 most shorted companies. We reached out to a few on the list to see if their CEOs wanted to talk. We either did not hear back or got a polite no, thank you. But after the story aired, we heard from a listener who worked at one of the companies. Would your CEO be willing to talk, we asked. The answer was yes.

Just say name and title.

NIRAJ SHAH: I'm Niraj Shah, the CEO co-founder of Wayfair.

KESTENBAUM: Wayfair sells something online that a lot of people are used to buying in stores - furniture. You may have seen the ads.

(SOUNDBITE OF AD)

UNIDENTIFIED ACTRESS: (As character) Welcome to wayfair.com. We sell home stuff, your home stuff, anything, everything online.

KESTENBAUM: What is the heaviest thing you sell?

SHAH: We have some beds, for example, that can weigh 1,500 pounds, like big, ornate, carved wood, you know, huge pillars. And so the delivery on some of these items is tricky to say the least.

KESTENBAUM: The company went public just last year. Lots of people bought the stock, presumably thinking, great idea, a huge online furniture store. But there were also skeptics, people apparently so convinced this dream would fail that they bet against the company. They shorted the stock. If Wayfair fails, the short sellers make money.

SHAH: You know, it doesn't really bother me that folks short the stock. I was just surprised, to be honest.

KESTENBAUM: Doesn't it bug you a little bit?

SHAH: You know, it's - I guess, maybe annoying would be a better term.

KESTENBAUM: When a company ends up on the most shorted list, it's often because there are two groups of people with totally opposite views on something critical to the company's future. In this case, Shah thinks, the controversial thing is those ads.

(SOUNDBITE OF AD)

UNIDENTIFIED ACTOR: (As character) (Singing) Wayfair, you got just what I need. Everything from my home, you got it for me.

KESTENBAUM: The debate is not over the ads themselves, but the amount of money Wayfair is spending on advertising. The ads are helping sell lots of barstools and four-poster beds, but the company is not making a profit yet. Shah says the company will be able to scale back on ads once the Wayfair name is out there. He's made his case with data and numbers on repeat customers, but that has not seemed to sway the short sellers. They're still out there. He's not sure why.

SHAH: The degree of the short interest means that folks are super convinced that they're right. And I guess that is the piece I'm missing.

KESTENBAUM: Would you like to meet someone who has short your company? If we could find someone, would you talk to him?

SHAH: Oh, yeah. I'd be happy to.

KESTENBAUM: This is the part of the radio story where we would cut to the tape of us calling up someone who has short Wayfair. And we looked, tried to find some big investor who had shorted the company and would talk. We searched the popular blogs, reached out on Twitter, talked to well-known short sellers, but no luck. Sometimes, when you just fundamentally disagree, there's nothing to talk about. You place your bets, and you wait to see what happens. David Kestenbaum, NPR News. Transcript provided by NPR, Copyright NPR.