Could RIM See $20 On BlackBerry 10 Launch?
On Monday, shares of Research in Motion (RIMM) rocketed higher, rallying more than 10% and closing just under $15. If you exclude the after-hours session following the company’s latest earnings report, Monday’s trading marked the first time shares traded north of $15 since early 2012. While there was no company specific news, investors were punishing Apple for a reported large cut in component orders, and may have bid up RIM on the hopes that BlackBerry 10 would see increased sales.
That BlackBerry 10 launch date is not far off now, as we’re just two weeks away. RIM shares have rocketed higher in recent months as revenues and earnings have not been as bad as expected. But the rally could continue going forward. Bill Maurer detailed a few reasons why we could see $20 on the promise of BlackBerry 10. First though, he started with some recent news.
Recent company and competitor news:
Last week, we got a sneak peak at the BlackBerry 10 launch and plans for 2013. According to CMO Frank Boulben, the company plans at least six BB10 devices in 2013, beginning with an all-touch device and a phone with a Qwerty keyboard, which it will announce January 30th. The company will look to hit a variety of markets and price points during 2013 because the company does not have any exclusive deals with carriers.
Last Thursday, shares of RIM got a boost as phone maker Nokia pre-announced its Q4 results. Nokia shares rallied nearly 19% on the day after the company stated that it “exceeded expectations and achieved underlying profitability.” Lumia shipments totaled 4.4 million, well above Q3′s 2.9 million, and generally above expectations. The company also announced that average selling prices jumped to €182 from Q3′s €155. Why is this important for RIM? Well, many investors were counting out both Nokia and RIM. It’s possible that both aren’t doing as bad as expected, and maybe in fact stealing away some share from other names.
Friday was a very interesting day for Research in Motion. First, the stock was downgraded to Sell by BMO, with a reduced price target of $9. However, shares shrugged off the downgrade, and ended up rallying almost 14% for the day. Part of the reason was probably due to some short covering, which I’ll detail a bit later. Another reason was perhaps our own leaked photos of the new Z10, RIM’s first touchscreen-only BB10 device.
Then on Monday we got the Apple news, sending Apple shares below the key $500 level at times. To me, the Apple news is not very surprising. We knew that Apple’s fiscal Q1, which ended in December, was going to be a huge selling quarter for the iPhone. Don’t forget, Apple released the 5 in late September, so they already sold a few million units in their previous year’s fiscal Q4. The fact that Apple is cutting component orders for calendar Q1, the company’s fiscal Q2, just means that they are slowing production, which I believe is due to a new phone coming quicker.
We’ve heard rumors that Apple could launch a new version of the iPhone 5 in June. If that is true, it would make sense that Apple is cutting back production on what would end up being an “older version” of the phone. A fair number of analysts are calling the component cuts old news, and most analysts were forecasting reduced iPhone sales in Apple’s fiscal Q2 compared to Q1 anyway. Don’t forget, Apple started selling the iPhone 5 in China during December. Last year, as they told us in their 10-Q, the iPhone didn’t go on sale in China until January. I think Apple is going to have a huge Q1 in terms of iPhone sales, and then we’ll see Q2 sales down a bit. That’s not a surprise, and the news seems like a bit of an overreaction.
But the appearance of weak demand for the iPhone gave a boost to RIM shares on Monday. A loss of say 100,000 iPhone sales here and there might not seem like much to Apple when it sells 25, 35, or even 45 million iPhones in a quarter. However, you have to look at the flip slide. If Research in Motion steals those 100,000 units, it’s a lot for RIM, a company that’s selling roughly 7 million to 8 million units a quarter. Additionally, for a stock that’s been so beaten down, any additional sales will be seen as a huge boost.
Now with recent news regarding Research in Motion and other players in the space, it’s time to look at what could continue to drive shares higher.
Reason one – short squeeze potential:
I described above that some of the company’s recent moves may have been due to short covering in the stock. We heard a similar theme prior to the company’s latest quarterly report, but yet, the number of shares short still was going higher. The chart below shows short interest in the company over the past 8 months.
From the end of April to the end of 2012, the number of shares short in Research in Motion skyrocketed from 53.7 million to more than 137 million. That’s a rise of more than 155%. As of the end of December, approximately 26.1% of the more than 524 million shares outstanding were short. That’s a substantial amount of shares short, and there are a lot of non-believers out there.
Additionally, the number of shares short continued to rise after the third quarter earnings report, which is surprising. The company beat again, but investors were not satisfied. Shares plunged after the report, which I guess had to do with the increase in shares short. But look at the recent pop. At the beginning of November, the short count was roughly 95.4 million. At the beginning of December, it was up to 113.7 million. The count rose by another 23 million plus in December.
The key takeaway here is that a large short count could lead to a huge short squeeze, and maybe the upcoming BlackBerry 10 launch will do that. You might say that we’ve seen some short covering, but remember that as the price goes higher and higher, we could in fact see more non-believers. Even with such high trading volume the last couple of days, I don’t think that 50 million or 60 million shares have been covered. We probably won’t get the mid-January numbers for another week or so, but I don’t expect them to post a substantial drop. It’s possible that maybe 20 million or 30 million shares short were covered, but even at that point, you are still around 105 million or more, which is still 20% of the outstanding share count. Nervous shorts could push this name higher, and quickly, as we approach the BB10 launch.
Head over to Seeking Alpha to see the rest of Bill’s reasonings.