We have written about BlackBerry (BBRY) here on SA and the rising short interest in their stock. Yesterday, we got an update from our prime broker that told us Goldman Sachs had informed them that the negative rebate-NR (cost to borrow the stock) had notched up to 9.1% annually. While the NR can be higher for other highly shorted stocks like magicJack (CALL), which is hovering at a 60% NR and virtually impossible to borrow, we think the additional color GS reported, that only 200,000 BBRY shares are available for all their clients who wanted to short BBRY, is extremely important information for traders.
Is the short trade in BBRY a crowded trade? We think so, because over 38% of the available float is short according to Bloomberg:
While the NR can be higher for other highly shorted stocks like magicJack, which is hovering at a 60% NR and virtually impossible to borrow, we think the additional color GS reported, that only 200,000 BBRY shares are available for all their clients who wanted to short BBRY, is extremely important information for traders.
GS's 200,000 availability represents just .117% of the 171.3 million shares short. If the most sophisticated institution on Wall Street servicing short sellers is running this low on inventory of shares to borrow and explaining they are experiencing recalls (an event when an owner of shares wants their lent out shares back), we think the NR is about to go higher. Moreover, this could happen very quickly when we start seeing reviews like this about the Q10 release on Verizon (VZ):(click to enlarge)
We recommend reading all the reviews above. They tell you a lot about what's happening with the new Q10 and what is going to be reported by BBRY on Friday, June 28th when BBRY earnings are announced. We think the short sellers are doing everything they can to keep BBRY shares depressed. We also think it's going to backfire on them as it did with their positions in Tesla Motors (TSLA) right after they announced their earnings on May 8th (see below):
Products like TSLA's superior electric vehicle, the Model S, and BBRY's Q10 drive brand loyalty and stock price appreciation normally follow. Short sellers have been bloodied this year with the Federal Reserve's aggressive QE initiatives. But increasing their bets on companies that have a strong customer following like TSLA and BBRY is never a good idea, especially when shares are unavailable for borrowing and the short story becomes the next dreaded 'crowded trade' that needs to be unwound.
Yesterday, SA reported:
Tuesday, June 18, 12:38 PM BlackBerry (BBRY +4.3%) gets a lift from a positive note from RBC's Mark Sue (Market Perform), who now thinks 3.5M BB10 phones were shipped in the May quarter (up from a prior 2.75M) thanks to new Z10 carrier deals and channel fill. Sue adds "BB10 demand appears to be mixed by region," with the U.K., Canada, and the Middle East seeing the strongest sales, and U.S. demand weaker. He now expects BlackBerry to report above-consensus FQ1 revenue and EPS on June 28, and thinks heavy short interest (32% of float shorted) could lead to a squeeze.
And yet, SA reported this today:
BlackBerry slips 3% premarket after a downgrade to Sell at Bernstein, which sees earnings...Wednesday, June 19, 8:11 AM ETBlackBerry slips 3% premarket after a downgrade to Sell at Bernstein, which sees earnings peaking in FQ1 and "significant risk" of a miss in H2. OTR Global says U.K. Q10 sales fell off a cliff and have been - "not a typo" - just 30K-50K units since launch, reports Notable Calls.
We believe the Verizon customer reviews tell us the truth about consumer opinion on the Q10. Therefore, we think the very last available shares to borrow are being strategically used by short sellers to bewilder investors on what's happening behind the scenes at BBRY. The answer to that question is simple: They are selling smartphones, millions of them.