Roku Inc. (ROKU) shares have plunged 20 percent since the company reported fourth-quarter earnings on February 21, but short sellers are betting the stock will fall even further. 

Since reporting 4Q results, the cost to borrow Roku shares has soared, and that may be an indication that more short sellers are crowding into the stock. As of February 15, the short interest in Roku climbed by 12 percent since the last earnings reporting period on January 31, ahead of the company's results. 

Roku reported first-quarter 2018 guidance that came in below estimates, and that triggered the shares to plunge in the days that followed its fourth-quarter earnings release. Analyst had been looking for 1Q revenue guidance of roughly $131.7 million, and the company guided revenue in a range of $120 million to $130 million. (See also: Roku's Stock May Fall 35% Further As Sales Stall.)

Surging Borrow Rate

(Interactive Brokers)

The borrow rate, which is the annualized cost to borrow shares to sell short, has surged in recent days from roughly 25 percent to over 56 percent, a massive jump. This suggests that short sellers are borrowing Roku shares to short the stock, in a bet that prices will continue to fall. Supply and demand often determines the rate to borrow shares, and as demand rises and supply shrinks, the rate rises. 

In November 2017, the cost to borrow shares of Roku jumped from around 10 percent to nearly 55 percent. The number of shares short increased by 61 percent to 7.69 million on November 30, from 4.78 million on October 31.

Rising Short Interest

ROKU Short Interest Chart

The latest short interest information as of February 15 shows that short sellers were shorting the stock going into the company's fourth-quarter earnings release. The number of shares short as of January 31 stood at roughly 6.36 million, and that jumped by 12 percent to 7.15 million as of February 15.

The percentage of the float that is short Roku is tremendous, at nearly 45.6 percent, and that is up from 40 percent at the end of January. (See also: What Exactly Is a Company's Float?)

Lock-Up Expiration

Traders could be getting short Roku on the reduced first-quarter revenue guidance, betting the company's outlook continues to worsen. Or, they could be trying to build a short position ahead of the lock-up expiration period, which comes 181 days after the prospectus filing on September 27. This could lead to new shares coming to the market. The prospectus notes that upon expiration of the lock-up period, 79 million shares would become eligible for sales. Roku initially went public with 15.668 million shares.

With shares of Roku already down 20 percent since the company reported its fourth-quarter earnings, short-sellers are betting the stock will continue to deteriorate.