It's gotten all too familiar if you are a shareholder of BlackBerry (BBRY).
On Friday Morning (May 31st), Digitimes reported that BBRY had upped its component orders from suppliers. Now, however you want to spin it, that's good news; it means product is selling and they are struggling to keep up with demand, so naturally the stock was up 2% premarket. The stock opened flat, and slowly bled throughout the course of the day, and finally closed down below $14; in the red by better than 3%.
Why? Later in the day the sell-off was attributed to the analyst at Pacific Crest covering the stock, James Faucette, who made some comments that BB10 production "remains well in excess of current sell-through demand."
Now we all know that over 30% of BBRY's float is short interest, and obviously, those short-sellers have an interest in seeing the stock remain low. While it's impossible to know exactly whom and how much, the prevailing wisdom is that the largest short sellers are substantial hedge funds.
Having come from the hedge fund world, I have a pretty good idea of how the sausage is made. Large, reputable, research firms try to keep their research as unbiased as possible, and it's unlikely they will publish research just to further a client's interest. There is too much risk to the firm and the reputational damage would be too great if word got out. But it's a different story when it comes to some of the smaller guys.
There are some smaller broker dealers, however, who exist only to act as PR firms for the hedge funds that pay them. For instance, if a hedge fund has built a long position in a particular company, these broker dealers will use their "research analysts" to go around and make positive comments about the company to drive the stock price up, and of course, the reverse. In BBRY's case, there are several research analysts who are fabulously bearish, and their comments and timing impeccably track positive and breakout-worthy news surrounding the firm.
Broker Dealer and "Research Analyst"
Nature of Claim & Aftermath
Pacific Crest Securities:
BBRY building too much product to sell.
Highly speculative, not based in material fact and contrary to the fact based Digitimes story earlier that day (BBRY upped component purchases). Faucette's comments conveniently hit the market while the positive news from Digitimes was being absorbed.
Aftermath is TBD.
BBRY Z10 return rates much higher than industry average. More specifically, he claimed that Z10 returns "exceeded sales," which is utterly nonsensical. Nevertheless, the stock came down 8% that day
BBRY harshly disputed the claim and asked the SEC to investigate.
BBRY's General Counsel Steve Zipperstein claimed: "everyone is entitled to their opinion on a product's merits but when false statements of material fact are deliberately purveyed for the purpose of influencing the markets, a red line has been crossed."
Verizon Wireless also issued a statement: "After the first 15 days, performance of the Z10 has been in line with similar devices we've launched."
Proven to be false, and the SEC is probably investigating Detwiler. In any case, Johnston and Detwiler's reputation have been tarnished for publishing egregiously biased and false "research."
ITG Investment Research:
"The U.S. launch of the Z10 started poorly and weakened significantly as the days passed."
BBRY fell 7.8% when this news hit the market. Fersedi cited "independent dealers" in his report.
The reality is this type of "research report" can be spun one way or another. I have done extensive channel checks on the Z10 release, and the overwhelming response I have gotten is that the phone is doing quite well.
Fersedi hides behind the ambiguity and lack of relative measure when he publishes his analysis. For instance, if the Apple (AAPL) iPhone is outselling the Z10 ten to one, the Z10 is still a home run. The expectations are so low, that if BBRY even sold 30 million phones in 2013, it could justify a share price that is three times its current value.
The shorts are getting desperate, and the Q10 is being released in the US in the coming days, and earnings are being released within a few short weeks. If I was short, I would indeed be nervous, but I am thankful for the opportunity to buy this company at a discount.