BlackBerry (BBRY) has surged 25% this year and is more than 100% off its September lows on hopes for its new BlackBerry 10 device. While the fanfare over the new product may eventually help stabilize market share and turn the company around, investors should be aware that there will be stumbling blocks on the way. Those with a low tolerance for risk may want to take gains or hedge.
Wait a Minute, That's not Justin Bieber
Users of the new BlackBerry 10 device may want to think twice about some of those cool new features. It's being reported that the "Show What I'm Listening to" feature is not merely passing on fun social-friendly notes on what music you like but all media player usage.
The feature was originally designed to help connect users with their social media contacts by sharing what they are listening to with their BlackBerry Messenger (BBM) contacts. Most have assumed that this means sharing music listening habits. What the feature actually does is to record all activity in the media player and pass it on to contacts, regardless of the media type. Your boss and colleagues knowing that you listen to Justin Bieber on your phone is embarrassing enough, when they find out that you like to download and watch "other video media" you may want to update your resume.
The feature, and possible fallout from bitten users, runs the risk of jeopardizing the company's comeback. The stock is underperforming the market today by about 1.3% but the real risk is to further attrition from enterprise users. Apple (AAPL) has already been able to poach two big enterprise customers, Home Depot (HD) and the New Zealand government, and will be looking for all the market it can take.
Social Media Learning Curve
Problems like this are not new in the relatively early stages of social media. Facebook (FB) users will remember the company's Beacon advertising system revealing their purchases to their contacts unless they opted out of the feature. Facebook is still trying to work through privacy issues as it walks the thin line between monetization of its user base and outright selling information to advertisers.
Google (GOOG) had a similar stumble with its Google Buzz feature when it auto-populated users' most used Gmail contacts on its network. In one case, the feature notified an abusive ex-boyfriend of a woman's location, current workplace and other private information. The feature was eventually removed and led to a Federal Trade Commission settlement.
To be sure, the company has come back from the brink and could still be a great turnaround story. Cash increased by $600 million to $2.9 billion in the most recent quarter with revenue of $2.7 billion. More than 150 carriers are completing technical acceptance programs for the BlackBerry 10 products and the company is doing well in emerging markets. CEO Thorsten Heins was positive on the results and commented that the company was on track with its product roadmap plans.
Growth in the emerging market space may not be able to support the company alone if it continues to lose retail and enterprise customers in the developed markets. On this news, I would hedge positions for big moves on any headline risk of further loss in the enterprise market.
Short-term investors may want to use the current fervor to take gains while long-term investors may consider using options to hedge possible losses. Call options expiring in January with a strike price of $15 can be sold for $2.93 per share, a premium of almost 20% on the current price. This would give shareholders a considerable cushion if the stock ticks lower. A more risk averse strategy would be to buy put options, possibly the January $13 strike for $2.45 that would allow the investor to sell their shares at that price and guard against a large drop.
The shares are still well off their highs over the last five years and could reward long-term investors. While it will be difficult, possibly impossible, for the company to command the market share it did in the past it could still turn itself into a strong device in the lower-price market. Investors should be ready for some volatility along the way and risk-averse investors may want to hedge aggressively.