Every once in an while investing tragedy occurs and shares, either long or short, are caught on the wrong side of a trade and slaughtered. In the case of Short Flight BlackBerry (BBRY), tragedy occurred today when they all followed Wall Street group think: BBRY was like Palm and doomed to go to 0. Analysts sometimes like simple paradigms they can feed to their clients, and the Palm look-alike trade was simply too tempting. But it was not only Captain Suva of Citi Airlines that sent his clients down to the abyss, he was well accompanied by Air Morgan Stanley's Research team as mentioned last September here. In fact, almost half the street had a sell on BBRY, I just cited the two most comical ones.
A Broken Trade
Blackberry was a company that was left for dead and beyond hope according short folklore. To be fair, past management errors had been so horrendous. As presciently pointed out by Forbes Magazine, shorts piled in during the period that the stock rose from $8 to $18, to the tune of 135 M shares, or 27% of the float.
"App Eco systems" became the analyst buzzword of the month and Blackberry had missed the boat. These analysts fatally overlooked the power of QNX (A must read here at SA) and ensuing ease with which Android apps can be converted (Look here or here.) It is so easy in fact that these websites offer free, on the fly instant conversions for you, just upload the android app and the blackberry one is returned out in 30 seconds… not bad? (Google Maps with navigation runs beautifully!) Why is this important? Because when real app makers want to convert their apps, it is going to be a very easy and pain free process, and the 'No apps ecosystem' analysts have completely missed this little understood fact.
Lastly, and most often overlooked, apps themselves are a mere stepping stone into a browser-based HTML5 world. Content providers are loath to pay Apple (AAPL) 30% of their sales and HTML 5 provides app-like experience …without the app rev share. Try it: Go to app.FT.COM on your iPhone. Pearson, who publishes the Financial Times, built this in HTML5 so as not to pay Apple's 30% rev share. Think more will follow? Now when you consider that the browser on the BB10 is more powerful than both the Samsung S3 and the iPhone, you really start to ask do I even need all these apps?
This simply became a trade with increasingly only two outcomes: the company was either heading into low single digits, or the stock would soar into a massive short squeeze. I would like to put forward that we are in the midst of a massive shorts squeeze and investors should chase this as a buying opportunity that only materializes rarely.
Lastly, against all odds, the Z10's launch was a massive success in terms of reviews from influential techie sites like Gizmodo and users themselves, in terms of sell outs in London, and most noticeably, the phones they left to buy the BB10:
The Shorts Communicate (nice word for 'collusion'):
The shorts were vicious: the actual moment that the two BB 10 phones rose from the floor during the presentation they all hit the sell button at the same time. This was not a fluke. There is no doubt in my mind that this was coordinated otherwise the selling would have been spread throughout and weighted towards the end of the presentation. That was not the case. Shorts knew they needed massive selling volume to cream the stock that was so heavily traded on that day. Unable to do it alone, they colluded and the sell signal was 'When the phones appear' Fine, nothing new from Wall Street, (please see Cramer's, shocking confession here on past manipulations of RIMM stock, two minutes into the video). Why does this matter?
Because Now You Have Short Mexican Standoff …
This is where things get fun: what do you think the conversation is like between shorts now? Pages must read like a Hollywood disaster movie filled with deceit and double cross. I imagine something like this:
Hedgie One to Hedgie Two: "This is London thing is just a blip, I'm gonna hit them hard with some selling and shake this out. We remain firmly on the short side of this turkey! You with me too? Right?"
Hedgie One hits the mute button and yells over to his trader: "BUY BUY BUY! Start Unwinding BBRY. Get out! Get out!"
Hedgie Two to Hedgie One: "Yup, just had a management committee meeting and this trade is on baby! London news is just is a joke, we concur, BBRY will tank."
Hedgie Two hits the mute button and calls out to his traders: "Hedgie One just lied to me he's covering! BUY BUY BUY! Start Unwinding BBRY. Get out! Get out by end of day!"
And this conversation gets repeated across the short community in horror as they scramble for the exit signs. Thank you Air City and Air Morgan Stanley et al!
· The Palm analogy was lazy and false
· The trade was way over crowded at much lower price levels already
· The App Ecosystem crisis is way overplayed
· The phone's launch was an unexpected success
· BBRY is now a takeout target and this introduces deal risk to the shorts
Every time I left my head from typing these shares pick up another 15- 2- cents. Call it what you want, a broken trade, a major reversal, a short squeeze etc.
What Should You Do Now?
Well, like a fine German soldier in a World War II movie, you should shoot the retreating enemies in the back and buy buy buy! BBRY has come from $18 and is floating around $16 as shorts are margin called and force to buy back in. With the certainty of quality of the phones removed and zombie Crackberry addicts storming the London high streets, this is a chase you should not miss. I have almost doubled my exposure yesterday following my "All in Call." Invest at your own risk etc.