BlackBerry: When's The Next Short Squeeze?

Jun. 9.13 | About: BlackBerry Ltd. (BBRY)

BlackBerry's (NASDAQ:BBRY) shares have been decidedly snooze-tastic after all of the fuss with the Lenovo (OTCPK:LNVGY) buyout rumors. While I was first on the scene to point out that Lenovo couldn't afford BlackBerry even if it wanted to buy it (and I doubt that it would want to), the rumor seemed to give the stock new life as a new batch of short sellers underwent the "high volatility squeeze" treatment. Naturally, as the hype faded, so did the stock, and here we are again sporting a $13 handle after all of the fuss. So the question is - when the heck is this stock going to move?

Leg Up Or Leg Down?

I think that very soon, we will see the next major movement in the share price. This means that either we'll see the shares trading in the $20+ range, or headed back to the single-digits - I don't really expect the stock to stay in this rather narrow trading range for too much longer.

See, BlackBerry is one of those names that is incredibly controversial - either you've got a bunch of longs and call buyers betting huge on the name, or you've got a bunch of short sellers/put buyers betting on a steep decline'/bankruptcy. I personally have no conviction either way - the BlackBerry 10 is a good phone and all, but I'll leave it to the market segment share numbers to sell me if BlackBerry is really going to "make it" in this new environment.

So, what BlackBerry traders/investors need now is a major catalyst that either makes very clear the bear case, or very clearly shows that the bullish case is playing out. In absence of any material news, the sell-side has been attempting to generate buzz by issuing buy/sell recommendations, talking about "channel checks" and "sell through momentum", and so forth, often each with conflicting views/data. The sell-side analysts don't actually have an agenda as it is unlikely as these firms hold any long term positions either way, but it is their job to generate volatility to rake in commissions, and thus far they have been rather successful at it - BlackBerry has made a fortune for the brokerage houses.

Some Thoughts About The Earnings Report & Future Prospects

Well, I'll tell you right now that the biggest and most interesting catalyst on the horizon is the earnings report scheduled for June 28th. This, in my view, is a "no bullshit" zone. The company will come out and report its earnings for the most recent quarter but, more importantly, it will come out with the forward guidance. Essentially, if it is clear that BlackBerry is doing the following, then shares should see substantial upside:

  • Seeing strong sell-through of its Z10 and Q10 phone
  • Seeing improving gross margins on handset devices, particularly as the margins have been propped up by service revenue
  • Market segment share gains, particularly in a tough environment dominated by Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iOS
  • A clear, sustainable, path to profitable growth

Unfortunately, that's a lot of "ifs". While Jeffries analyst Peter Misek claims that the Q10 is doing well (and that the Z10 is slowing), we'll have to wait to see how things look not only this quarter, but for a couple of quarters. I think some "signs of life" during the current quarter and in the guidance for the following quarter would be enough to drive upside, but for long term upside, BlackBerry can't just see a temporary "blip" in sales only fall behind again - it needs to be sustained.

But see, that's really the problem - the handset market is a fiercely competitive one, and it seems that it takes massive marketing dollars and economies of scale to succeed, and even then, Samsung and Apple haven't exactly been immune to the commoditization of the smartphone and the environment. It's a tough business selling computing devices due to the tendency for these devices to commoditize quickly.

Can BlackBerry build a sustainable advantage with BB10 and its successors? Can BlackBerry keep up in terms of the latest displays, processors, OS features, APIs and all of that which keeps a computing ecosystem at the forefront? Will the public really accept BlackBerry back? It's a tough call, a tough question, and that's why it's really hard to get behind those that are calling for $100+ per share - it's just very difficult to try to predict these trends in this highly volatile market.

Conclusion

Right now, I'm very interested to see how the Q10 and Z10 continue to do in the marketplace, and I'm even more interested to see how BlackBerry will adapt to a business environment in which product cycles continue to speed up at a breakneck pace. Can BlackBerry's new platform succeed? I believe we will only know when we have a few more quarters play out and can see if any sort of longer term market share trend can be established. If, at the next earnings report, we see signs of life for such a trend, then I think the market will overreact to the upside (particularly with the high short interest) and that should be an excellent trading opportunity. But if things don't look so good, then investors may extrapolate the worst and send shares back into the single digits, if only briefly, as investors lose patience and begin to question whether the opportunity cost of this investment is really worth it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.