Research In Motion Not Likely to Spend $1.2B on Share Repurchase Program 27 comments
-
Font Size:
-
Print
- TweetThis
On November 5, Research In Motion (RIMM) announced a buyback of up to $1.2B in shares starting November 9 and lasting for up to a year. When I read this announcement, I pounced on the stock the minute pre-market trading opened. This was quite a mental exercise for me because I had just closed out the last of my puts on RIMM the prior week. However, given that part of my rationale was that RIMM appeared over-extended on the downside, I figured that positive news like this could pop the “over-stretched rubber band” back to the upside.
Much to my disappointment, RIMM opened for trading at my purchase price and within 45 minutes printed a fresh low on the day. That move punted me from the position with a very small loss. Two days and counting, the response to RIMM’s buyback announcement remains relatively tepid. It is as if the market is skeptical that RIMM’s share repurchases will amount to much. After reviewing RIMM’s balance sheet, I became skeptical of RIMM’s ability to spend the full $1.2B allocated for the buyback.
A quick review of RIMM’s balance sheet (data from Gridstone Research, Inc.) shows as of the quarter ending August, 2009, RIMM had $1.1B in cash and equivalents and $581M in short-term investments. Cash is down 5% both from the previous quarter and year-over-year. Short-term investments are down 6% from the previous quarter but up 38% year-over-year. Total current assets are $5.2B (total current assets include things like inventory and receivables), total current liabilities are $2.2B, and RIMM has no long-term debt. RIMM’s buyback would consume all of its existing cash or 71% of its total liquid holdings.
I find it hard to believe that RIMM would execute such a large drawdown of its stash of cash in just 12 months in a slow growth economy that remains borderline recessionary; the company lost cash in the past year, and boosting cash levels may prove extremely difficult in the coming year. Granted, with cash earning next to nothing these days, management need only believe in modest appreciation of the company’s shares to justify a massive repurchase program.
Cisco (CSCO) provides a great contrast. On November 4, CSCO’s board of directors authorized up to $10 billion in additional repurchases of its common stock with no fixed date for termination, bringing the total authorization up to $13.1B. CSCO’s balance sheet is flush with liquidity: $4.8B in cash and cash equivalents, $30.6B in short-term investments. Total current assets are worth $44.7B. While RIMM’s buyback consumes the majority of its liquid assets, CSCO’s buyback consumes about 37% of its liquid assets. I have very little trouble believing CSCO can handle its announced buyback under the current economic conditions.
My note of caution comes from watching Joy Global (JOYG) back away from its buyback program in March as its already limited cash and liquid holdings dwindled further into the depth of the recession. In September, 2008, JOYG boosted a $1B buyback to $2B with just $307M in cash in hand.
A TheStreet.com article “Not Every Share-Buyback Shows Confidence” also strikes a chord of caution when it comes to announced buybacks. The author reminds us that attempts to boost a company’s stock price through buybacks also benefits employees who hold stock as part of their compensation – management typically holds the vast majority of those shares.
In RIMM’s case, stock-based compensation has increased over the years: $38.1M at the end of fiscal year ending Feb, 2009, up from $33.7M the prior year. Stock options are detailed in the annual report. The last report was for 2008. Options outstanding dropped from 9.1M to 7.3M from March, 2007 to March, 2008. The annual report also states
as of March 1, 2008, there was $133.6 million of unrecognized stock-based compensation expense related to unvested stock options which will be expensed over the vesting period, which, on a weighted-average basis, results in a period of approximately 2.5 years.
That end-period just happens to coincide with the expiration of RIMM’s announced buyback. If this is more than just a huge coincidence, it at least shows that RIMM is highly motivated to execute this buyback – even if it cannot deliver the full $1.2B.
RIMM’s management is surely motivated to take action given the continued bleeding in the stock since its September earnings report which sent the stock down 17% in one day. From a technical standpoint, last week’s plunge below the 200 day-moving average threw up a huge red flag (see chart below). A similar breakdown last occurred September 3, 2008. Three months later, RIMM lost 66% of its value (of course, the entire stock market crumbled in that period). If RIMM’s buyback fails to prop up the stock in the short-term, there is very little price support until April’s up-gap is filled around $49. (Click here for a more detailed technical analysis of RIMM from ino.com.).
RIMM Buyback Comes At A Critical Technical Juncture for the Stock
*Chart created using TeleChart
Be careful out there.
Disclosure: no positions
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 27 comments:
2. Huge payroll and operating expenses
3. Negative shareholder sentiment over dividend loss
4. Next to zero cash - cashflows vulnerability
5. Huge depreciation of unsold inventory
6. Weak investor support
7. Unknown continuation of the Recession
Under these pressures, Rim's buyback is next to suicidal, but perhaps necessary. The weight on downward pressure on Rim share price will only increase as iPhone and Android continue to take away blackberry sales. Apple is increasingly taking away Rim's remaining advantages such as the ability to PIN between blackberrys as Apple builds up network operation centers. Apple and Google have close to $70 billion in cash to compete with Rim's $1 billion making any Rim buyback insignificant.
We will see how much iPhone would increase its 30% from 2% before as blackberrys fell from 52% to 40%. the smartphone market is really up to Apple to lose. If the analysts were right iPhone should be up around 70% by next year because the real battleground is not the corporations and business users, but the 300 millions consumers who want the best all purpose smartphone in the world, that is the iPhone, not blackberrys.
I will tabulate companies that ditched blackberrys for either the iPhone or another make that's not from Rim.
Smartphones will be obsolete.
I have a lot of friends having both BB and Iphone. This huge market can support more than 2 major players. I understand you are a big fan of Apple. But please don't discount RIMM by using those nonsense comments. I don't see BB will disappear from the market anytime soon. Meanwhile, I noticed that most of Iphone users are young people, who is looking for cool thing. However, the main driver of the economy is business users and those wealthy professionals, who have made enough money to pursue classic product (BB). Same thing happens in the computer too. Mac is cooler than most of the laptop like IBM, Toshiba or dell. But most of the business users are still using IBM, Toshiba and dell. It will not change anytime soon.
The prejudice and dreads of BB fanatics toward the iPhone are painfully clear barely hidden by stubborn irrational hatred. This kind of animalistic animosity is stereotype BB user mentality.
I see your postings all over the internet. All they do is bash Blackberry. What is so wrong with Blackberry? They provide such an enormous amount of security and trust that the President of The United States of America uses one, Barack Obama. Let me repeat that. The President of the United States of America uses a Blackberry. In addition, he has been quoted numerous times about how he loves it. Do you think the President of the most powerful country in the entire world would be using an outdated, unusable, slow, or insecure device? I don't believe so and I would most likely guess that the rest of the country would agree. Except, maybe for some teenagers and young adults between the ages of 16-25. I hope you enjoy your hate spree. Cheers.
RIMM is strong in the US and CANADA.
not much anywhere else.
RIMMs bread and butter is email delivery.
Yes they are secure, yes the US president uses it made even more secure.
In most parts of the word. its SMS (short messaging system)that rules. Which USA took a very long time to embrace albeit understand.
Would you think ASIANs and EUROPE, LatAMs. would suddenly embrace RIMMs push email? That's a paradigm shift which has a very very nil chance.
I partially agree with you that BB is strong in US and Canada but it is not "not much" in anywhere else. It is doing pretty good in Europe as well. You are right it is not much in Asia and LatAms. I am glad that you did not mention "Africa". My point is there are reasons for BB having no significant presence in those area. Asia and LatAms have majority population in developing country stage (even though some of them are rich). There are a lot of growth room still can be found in cell phone industry. Why those carriers wants to jump in Smart Phone and facing uncertainty about whether the general population can afford those expensive toys? That is why MOT is doing great in those place but fighting for survival in north america. However, as the ecomony conitnue to grow in Asia and LatAm, finally they will adpot the Smartphone. And RIMM will be a big player as it is here.
On Nov 08 02:54 PM Dr. Duru wrote:
> Just a quick point of clarification, as this issue came up in an
> email exchange I had. I purposely excluded counting long-term investments
> on the balance sheet. *Typically*, long-term investments are not
> considered liquid. Unless the monies were specifically set aside
> for future repurchase programs, a drawdown of these funds for such
> a purpose could be considered a red flag about the financial health
> of a company.
On Nov 09 09:17 AM RiskCapital wrote:
> I wish I had enough money to get something else. I hate my iphone.
> The glitches are not worth the apps. I am hoping that if I take it
> in again, they will just let me get another phone. It may seem cool,
> but it is a POS.
On Nov 08 10:32 PM JamesApple wrote:
> BB are simply out of date overtaken by many. It's simple folly to
> say it's OK to use out of date BB. It's just irrational denial some
> people are using to stall change. American corporates are moving
> to iPhones in time. The American consumers are already sold to iPhone.
> BB are on the way out as Rim continues to deteriorate overtaken by
> competition.
On Nov 08 10:16 PM JamesApple wrote:
> After seeing remarks made by pro BB people I see one pattern. These
> BB fanatics would only stop BBs if and only if Apple buys out Rim
> using the $34 billion cash Apple has; once Apple owns Rim these BB
> fanatics would switch to Nokia and stop buying BB. It's basically
> a thinly veiled hatred of Apple these pro BB people have towards
> iPhone. One particular point I wish to make is, although Rim makes
> the Storm which is like the iPhone in hardware and usage, you will
> never see any BB user say a bad word against the Storm but they badmouth
> the iPhone all the same, even though the Storm can't even run most
> of the available blackberry apps!!
>
> The prejudice and dreads of BB fanatics toward the iPhone are painfully
> clear barely hidden by stubborn irrational hatred. This kind of animalistic
> animosity is stereotype BB user mentality.
Drop in BB sales? Except that they guided to the highest ever device sales this quarter.
Zero cash?? I think $2.5B > 0 (math fans please check my math here)
BB sales have actually GROWN through the recession.
James this is CLEAR proof you are a troll pure and simple.
On Nov 08 08:20 AM JamesApple wrote:
> 1. Potential double digit % drops in blackberry sales
> 2. Huge payroll and operating expenses
> 3. Negative shareholder sentiment over dividend loss
> 4. Next to zero cash - cashflows vulnerability
> 5. Huge depreciation of unsold inventory
> 6. Weak investor support
> 7. Unknown continuation of the Recession
>
> Under these pressures, Rim's buyback is next to suicidal, but perhaps
> necessary. The weight on downward pressure on Rim share price will
> only increase as iPhone and Android continue to take away blackberry
> sales. Apple is increasingly taking away Rim's remaining advantages
> such as the ability to PIN between blackberrys as Apple builds up
> network operation centers. Apple and Google have close to $70 billion
> in cash to compete with Rim's $1 billion making any Rim buyback insignificant.
But people buying smartphones won't buy one for Push email which is RIMMs bread and butter.
They are used to SMS. Push emails are useful for Managers, CEO, CFO. But for consumers. SMS is enough.
I still don't see a paradigm shift.
In Europe which is GSM. SMS still out paces email push.
smartphones will offer services such as mobile internet, search, location/navigation(GPS), social networking.
In other words more than just push email.
Recently RIMM acquired a software company making a mobile web browser. I think they have realized their weakness.
On Nov 09 09:49 AM User 493712 wrote:
> Hi Rich168,
> I partially agree with you that BB is strong in US and Canada but
> it is not "not much" in anywhere else. It is doing pretty good in
> Europe as well. You are right it is not much in Asia and LatAms.
> I am glad that you did not mention "Africa". My point is there are
> reasons for BB having no significant presence in those area. Asia
> and LatAms have majority population in developing country stage (even
> though some of them are rich). There are a lot of growth room still
> can be found in cell phone industry. Why those carriers wants to
> jump in Smart Phone and facing uncertainty about whether the general
> population can afford those expensive toys? That is why MOT is doing
> great in those place but fighting for survival in north america.
> However, as the ecomony conitnue to grow in Asia and LatAm, finally
> they will adpot the Smartphone. And RIMM will be a big player as
> it is here.
On Nov 08 02:54 PM Dr. Duru wrote:
> Just a quick point of clarification, as this issue came up in an
> email exchange I had. I purposely excluded counting long-term investments
> on the balance sheet. *Typically*, long-term investments are not
> considered liquid. Unless the monies were specifically set aside
> for future repurchase programs, a drawdown of these funds for such
> a purpose could be considered a red flag about the financial health
> of a company.