U.S. Markets closed

Snap short sellers have made a fortune since Kylie Jenner's tweet

Short sellers were losing their shirts betting against Snapchat parent company SNAP early this year. But everything turned after a negative tweet from Kylie Jenner and now Snap bears are laughing all the way to the bank.

Snap’s fortunes before and after Jenner’s tweet are almost the polar opposite of one another. Prior to her Feb. 21 tweet, in which the social media star wondered on Twitter, “sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad,” Snap short sellers had lost $537.7 million, according to data from S3 Partners, which tracks short interest in the market.

Kylie Jenner attends The Metropolitan Museum of Art’s Costume Institute benefit gala, May 7, 2018, in New York. (Photo by Charles Sykes/Invision/AP)

While shorting the stock has been a losing bet for the year, those who jumped on the bandwagon after the Jenner tweet have seen substantial returns. SNAP is the third most profitable short in the world, behind only AT&T (T) and Tesla (TSLA). However, as a percentage, SNAP dwarfs both in terms of returns for investors.

SNAP has generated a return of 52% profit for short sellers, fetching $715 million on $1.4 billion of invested short interest since the fateful tweet. Tesla has led short interest profit, generating $1.6 billion on $10.4 billion of short interest (15.9%) and AT&T has earned short sellers $746 million this year on $6.3 billion of short interest (11.8%).

“Kylie Jenner’s tweet sent the stock into a tailspin, which the stock has never fully recovered from,” said Ihor Dusaniwskymanaging director of predictive analytics at S3. “Coupled with a poorly received app redesign and revenue misses, shorts have earned $715 million in mark-to-market profits since the end of February.”

“This was a big turning point for short sellers,” he said.

The tweet from Kylie Jenner that began Snapchat parent company SNAP’s precipitous decline.

SNAP has been a popular pick among short sellers since it debuted on the New York Stock Exchange in early 2017. Two weeks after Snap’s market debut, S3 found traders were shorting 22 million shares worth $454 million. Tesla is currently the most shorted company in the world.

Short sellers “rent” stock with the expectation that the stock’s price will fall, at which point they buy the stock and sell the more expensive shares they previously held, pocketing the difference. These investors are essentially looking for overvalued companies, rather than undervalued ones, to invest in and make money.

Overall, SNAP short interest actually has fallen, down $285 million year-to-date, or about 19%, but shorts continued to pile in as the price has fallen, with shares shorted increasing from 84.4 million when the stock was at $15.63 to 115 million shares shorted today, Dusaniwsky said.

“This indicates strong bearishness in the stock as short sellers continue to build their positions as they make money on the trade,” he added.

Thanks to the Jenner tweet, SNAP has the third largest short in S3’s U.S. Application Software Sector, trailing only Salesforce.com (CRM) and Workday (WDAY).

Dion Rabouin is a markets reporter for Yahoo Finance. Follow him on Twitter: @DionRabouin.

Follow Yahoo Finance on FacebookTwitterInstagram, and LinkedIn.