👉 Background: IDP Education helps place international students in universities and runs English language testing since it was founded in 1969. Back in 2006, SEEK acquired a 50% share in IDP, but sold its share when IDP listed on the ASX in 2015… and probably isn’t regretting that decision. While international students has been a hot sector for the past decade, it’s certainly slowed down lately.

👉 What happened: IDP has announced its earnings would drop by around 30% in FY25 and this was due to stricter migration policies across key markets like Australia, Canada, the UK and the US. In fact, student placement volumes are expected to slump by about 28-30%. And, with $348 million in long-term debt, cash flow pressures are mounting.

👉 What else: While clearly this came as a surprise to some investors, it seems like other investors had predicted this. It was actually the 6th most shorted company on the ASX, with nearly 12% of its shares sold short. And those short-sellers are laughing all the way to the education-bank now.

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What's the key learning?

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💡Short selling is when an investor borrows a stock, sells it on the market, and hopes to buy it back later at a lower price to return to the lender, and theeeen they pocket the difference. Basically, you're betting the company’s going to flop.

💡Shorting can be profitable when a business stumbles, but it’s risky. The upside is capped because the most a stock can fall is 100%. But the downside is unlimited if the share price rises.

💡Take the Gamestop meme-stock saga in 2021. The stock was heavily shorted by a hedge fund called Melvin Capital. After hearing this, Reddit users pumped the stock so high that it forced Melvin Capital to buy back shares at enormous losses just to cover their positions. It lost $6.8 billion USD as part of this short squeeze… and then Melvin Capital eventually shut down.

But in IDP’s case, the short sellers were right.