BlackBerry In Dire Straits And Why I'm Still Not Buying

| About: BlackBerry Ltd. (BBRY)

I was not a popular guy with BlackBerry (NASDAQ:BBRY) longs on February 4th, when I published one of my very first articles here on Seeking Alpha entitled "Dead Company Walking : 5 Reasons BlackBerry 10 Marks the End". I was lambasted by swarms of loyal BlackBerry longs who swore to me up and down that I was as wrong as can be, and that my short position (that never existed in the first place) was going to get crushed.

I stated in my previous article:

The mobile phone market is no longer an emerging market. It is a market simply dominated by both Apple and Android. In conjunction with that, almost all smartphone accessories and 3rd party products are made for either the iPhone or certain Android phones. BlackBerry is not only going to have to compete with these two, it's going to have to reintroduce itself as a whole into the already firmly established mobile phone market. That means the potential customers that BlackBerry is going to be going after are probably already loyal to either Apple or Android.

These five points are enough for this investor to lean towards the bearish side on the upcoming BlackBerry 10 release. Unfortunately, in the balance, also hangs the fate of the company as a whole. There is substantial risk on going long BlackBerry here, a risk that makes a short position the most desirable here.

Now, it's looking like BlackBerry is in foreclosure - and it's riskier than ever to put any money into this company.

The past year, as you can see from the chart below, has been a roller coaster ride for BlackBerry. Although it's true that people investing twelve months ago to the day are still yielding about 65% gains, there's a large contingency of BlackBerry supporters that bought in the subsequent 10 months that are now underwater - some of them to the tune of 50%+.

(Click to enlarge)

That teaches us our first lesson with BlackBerry. Buyout or no buyout, private or public, partnership or not - it's extremely tough right now to look at BlackBerry as a long term investment; or, for that matter, anything less than simply a speculation play for potential longs. This is also starting to become a bit more prevalent when one looks at the options for BBRY - the implied volatility, even for options that expire in just three short weeks, is growing. reported Thursday morning on BlackBerry - the company that's now officially running an "EVERYTHING MUST GO!" style sale of the company:

Just when it looked like things couldn't get any bleaker for BlackBerry, they did.

The struggling handset maker is now aiming to quickly auction itself off, possibly as soon as November, according to a Dow Jones report.

BlackBerry has been in discussions with multiple parties interested in buying parts of the company or the company as a whole, the report said.

The company said in August that it was exploring "strategic alternatives" and had formed a special committee of board members. According to the report, the board has narrowed down interested parties and will begin the sales process soon

So, it's looking like the shorts have got it right on this one. In addition, there were no shortage of analysts (there's never a shortage of analysts with an opinion) willing to chime in for soundbytes on the same article, all claiming that it's going to be ugly for BlackBerry:

"BlackBerry isn't even on life support. They are in a much worse position, they are almost finished," said Trip Chowdhry, an analyst at Global Equities Research.

There are no suitors out there that could really benefit from all of BlackBerry's assets, though parts of its business could be valuable for non-handset makers, analysts said.

"It's hard to think anyone would want to buy them lock, stock and barrel," said Charles Golvin, a principal analyst at Forrester Research. "I think they have components that are valuable. But I don't think they will survive as the BlackBerry we know today."

It really is starting to look like the company is in "check" here, with the coming garage sale of BlackBerry assets likely to be "checkmate" for the company. That's really semi-depressing news for people holding BBRY - but, imagine my surprise when the company was trading up in pre-market trading Thursday, on the heels of a green day on Wednesday. Are we living in a bizarro world?

"Jerry, George, Kramer - this is Kevin, Gene, and Feldman"

The likely coming sale of the company is sounding like it's going to be akin to scrapping a car for parts, instead of selling a running product. This is likely to significantly decrease the value of the company as a whole.

I'll entertain those who think the company, as a whole, is worth more than $11/share - but the company absolutely cannot be sold "as is" to be a functioning company, in this investors opinion. The reason is simple: BlackBerry isn't a functioning company and hasn't really been for many, many years.

The position the company is in is a product of not evolving with the touchscreen phone revolution, and then subsequently botching the release of their "flagship" BlackBerry Z10 line in both the U.S. and Canada. I pointed out this relatively large fundamental mistake in my February article:

This [missing their prime time for release] is an abhorrent way to start off a pitch for a new phone. The phone, although making its debut in parts of the world in the coming days, will not be available in the US until March. BlackBerry is blaming the delay on the US cellphone carriers, but one has to wonder why a company so well versed in the mobile phone market couldn't anticipate this and plan accordingly to have the phone released in the US on time. What does this mean for the company and for investors? Could there be something behind the scenes that we don't know about to cause this seemingly avoidable setback?

Also, the company isn't getting nearly as much bang for their buck for their Super Bowl ad which aired yesterday. There's going to be a nice buffer zone between that being fresh in the minds of potential consumers and the actual time somebody in the US can go out and purchase a phone. During that time, interest will wane and people will forget about it.

BlackBerry developers, which are none too large of a group to begin with, are already getting annoyed with the delay.

Another point is that the company misses what is seemingly a great window for them to make a splash on the consumer world. With no major product line additions coming out in January 2013 for both Apple and Samsung, there is a niche here that BlackBerry could have slipped in; making them the "event" for early 2013. Who knows what coming events by rival phonemakers could cast a shadow on a March release?

It was also worth nothing that, at the time, no big money on Wall Street seemed to be behind the company's "rebirth". If the big money on Wall Street isn't behind something, they're almost definitely on the other side of the equation. The question then isn't what money was backing the company at the time, but exactly how many big firms with big bankrolls and big influence were short BlackBerry at the time. I noted months ago that if there's a substantial short position, funds have the power to have the media turn on a company, crippling stock value and punishing long investors.

Which leads me to the short positions, and the argument regarding a short squeeze being a potential risk for people bearish on the company. According to Yahoo! Finance, roughly 30% of the company's float is held short, as of August 15. Longs on the company at this point are simply hoping to catch runner-runner to make a straight they've only got 3 cards to at this point. SA Contributor Efficient Alpha states, in their article "BlackBerry is Worth $15 Dead or Alive":

Investors looking for a long-term entry into the shares have been disappointed over the last several years. The stock has rebounded sharply on hopes for a turnaround only to fall again and hit new lows. Short interest in the shares has ballooned to more than 31% of the float. Any strategic announcement that removes the uncertainty of a total loss is likely to cause many of these shorts to head for the exit. Combined with new interest in the company, this could send the shares surging higher very quickly.

The renewed hope for a strategic alternative means that downside from $10 may be limited so I think you can buy into the shares and wait for a catalyst. Given the uncertainty even after an announcement, I would not wait for the shares to reach their $15 potential. I think sentiment and any rumor of an announcement could push the shares to $13 a piece and provide a nice return without having to stick around for execution of a plan. Option strategies like a bull spread may offer higher returns but carry a time horizon as well.

Admittedly, a short squeeze would no doubt move the stock right now and can be considered a risk for people positioning themselves bearish on the company. The question is - what type of an event is going to make something like that happen?

The one long shot I held in my mind for BlackBerry would have been an acquisition from Microsoft (NASDAQ:MSFT). I thought, behind fellow "late to the touchscreen party company" Nokia (NYSE:NOK), BlackBerry was the next best choice for MSFT to throw themselves into mobile - even though I'll be the first to admit that sometimes two wrongs (BBRY & MSFT) don't necessarily equate to a right.

Well, as we found out yesterday, BBRY/MSFT didn't pan out. Also, I think we're about to find out [just as we will in the case of J.C. Penney (NYSE:JCP)], that sometimes the shorts just have it right. BlackBerry, as a company, is generally worthless - and not only that, there's nary a suitor to be found that could benefit from acquiring a company in the shape that BlackBerry's in. It is in this investors opinion that the company is likely to be "sold for parts", yielding a discount to what the company is valued at currently. Inherently, it's too much of a risk to position yourself long on BlackBerry at this point in the game, and QTR recommends a bearish position or letting the fun unfold from the sidelines here.

As always, best of luck to all investors.

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.