Topline
A forceful resurgence in shares of Medicare Advantage insurer Clover Health has made "SPAC king" Chamath Palihapitiya a billionaire again over the past week, according to Forbes estimates, as Reddit traders plow into the heavily shorted stock amid a broader movement pinning individual investors against institutional giants.
Key Facts
Shares of Clover Health skyrocketed 32% Monday alongside a slew of other so-called meme stocks as a weeks-long trading frenzy sparked by bullish Reddit traders once again reached a boiling point.
Palahapitiya, 44, ended the day worth $1.3 billion, adding $131 million to his fortune on Monday alone after rejoining the billionaire ranks last week, according to Forbes' estimates using public data.
Ushering in the Reddit-fueled mania, Clover Health's short interest has surged to a record high 40 million shares, according to the latest data, representing nearly 10% of shares outstanding—in line with levels in other meme stocks surging Monday, including BlackBerry, Koss Corp and GameStop.
Analysts pinned Clover Health's Monday volatility to a swath of unusual options activity, as Reddit traders on the r/WallStreetBets discussion board garnered thousands of upvotes in posts touting a potential short squeeze, which typically happens when institutional investors betting on a price decline cut their losses by buying back shares at higher prices.
Clover Health's stock surge also coincided with a Monday spike in trading volume, as shares traded hands a staggering 100 million times Monday—the highest volume since a similar one-day price jump in mid-April.
Meanwhile, experts have been bearish on the stock, with Bank of America analyst Kevin Fischbeck warning in a recent note that the company won't be able to meet its "lofty membership growth targets" and giving the stock a price target of $9—25% below Monday's closing price of $11.92.
With additional reporting by Katie Jennings.
Key Background
Clover Health debuted on the Nasdaq exchange in January after going public in a $3.7 billion deal with Social Capital Hedosophia Holdings Corp. III, one of the six SPACs launched by Palihapitiya's investment firm Social Capital. Clover Health shares soared nearly 60% in the two months after the merger's announcement, followed by a 59% decline through May amid a rush of scrutiny—pulling Palihapitiya out of the billionaire ranks. In a February regulatory filing, Clover Health disclosed that the Securities and Exchange Commission was investigating allegations made by short-seller Hindenburg Research, which published a report days earlier alleging that Clover Health misled investors about its business before going public. The short-seller also revealed the Department of Justice was investigating at least 12 issues concerning kickbacks, marketing practices and undisclosed third-party deals. Clover Health denies any wrongdoing.
Tangent
Many meme stocks also soared Monday. AMC jumped 15% and at one point skyrocketed more than 20%. Meanwhile, BlackBerry and GameStop jumped 14% and 13%, respectively.
Surprising Fact
Like AMC, which last week announced a rewards program geared toward individual shareholders, Clover Health has embraced its emphatic Reddit investors, even taking questions from them during an earnings call last month. "We are a big believer in the retail investor community," CEO Vivek Garipalli said at the time. "On a personal basis, I started off as a retail investor over 20 years ago, probably trading too frequently. I made money, then lost money..., but [it] really made me want to become a great investor."
Further Reading
Billionaire Clover Health CEO Vivek Garipalli's Expletive-Ridden Tirade (Forbes)
Clover Projects It Will Have Only Half The Medicare Members It Promised Investors Before IPO (Forbes)
