ViacomCBS and Discovery shares continued their dramatic drop on Friday, each closing with a drop of more than 27%.
This led ViacomCBS to drop more than 50% in the week, while Discovery fell about 45%.
ViacomCBS shares started to fall earlier this week, after the company announced it would raise $ 3 billion from new stock offers. It was also downgraded to underweight of equal weight by Wells Fargo, which also downgraded the overweight Discovery to equal weight.
ViacomCBS and Discovery have been heavily short companies, as investors remain skeptical of companies’ long-term prospects in the crowded media landscape. The contagion effect of the recent short pressures on GameStop and AMC Entertainment (not AMC Networks) has prompted cautious investors to cover bets on ViacomCBS, Discovery and AMC Networks, as CNBC previously reported.
“What has changed is [ViacomCBS] came out of a net short position, where there was a squeeze, and there weren’t many shares available, and so the company issued many new shares, “said Charles Bobrinskoy of Ariel Investments on Wednesday.” This changed the dynamics where there is not the same type of short grip. “
Investors also attributed the retraction to a signal from ViacomCBS management that suggested the equity value was overpriced.
“We never, ever thought that we would see Viacom trading close to $ 100 a share,” said Michael Nathanson, an analyst at MoffettNathanson. “Obviously, neither does ViacomCBS management, as they appropriately sold $ 3 billion in shares / converted at high levels to help clear their leveraged balance sheet and invest more in streaming.”
– CNBC’s Alex Sherman contributed to this report.
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