RIMM Sentiment Was Too High - But It Was There To See

| About: BlackBerry Ltd. (BBRY)

Research in Motion's stock (RIMM) got a 7% haircut last night in late trading after the company announced results for the quarter ending March 3rd. Why the haircut? Not because RIMM missed numbers, at least if you look at EPS. And not because its guidance was below consensus. As RIMM's results were reported,

EPS of 99 cents was in line with consensus. Revenue guidance for next quarter, of $1.03 billion to $1.08 billion, is above the current consensus of $991.7 million, and EPS guidance of $1.01 to $1.09 (mid-point: $1.05) is in line with the current consensus of $1.05.

Rather, expectations were too high: the Street clearly expected RIMM to beat the sell-side consensus for the March 3rd quarter and raise guidance going forward. (I don't believe the SEC investigation was the factor that drove down the stock.)

One indicator of expectations is the articles being published on Seeking Alpha. Look at the headlines of articles published on RIMM in April:

  1. RBC Capital Anticipates Strong 4Q Results From Research in Motion (April 10th)
  2. Research In Motion: Estimates Up On Strong 8800 Demand (April 10th)
  3. Earnings Preview: Double Digit Growth Rate Possible For Q1 (April 8th)
  4. Research in Motion: Leaping Over Palm For a Slam Dunk (April 5th)
  5. Merrill: Research in Motion Set To Benefit From Smartphone Sale Explosion (April 4th)
  6. Research In Motion: Benefit From Strong Smartphone Demand (April 3rd)
  7. Research in Motion Risks Marginalization in Enterprise-Controlled Communities (April 3rd)
  8. Research in Motion: Expecting Buy Interest Today On Bullish Note (April 2nd)

Of the 8 articles published on Seeking Alpha in the 10 days prior to RIMM's earnings announcement, 7 were bullish. And the single bearish article was about the enterprise market, whereas the bullishness on RIMM was concentrated in its consumer products (RIMM's 8800 and Pearl handsets).

In other words: the excessively positive sentiment on RIMM was there for all to see. You had to be crazy to own this stock going into earnings, because RIMM would have had to have beaten numbers by a wide, wide margin to exceed expectations.

Seeking Alpha doesn't filter articles based on editors' opinions of a stock, but only by the quality of the articles. So these headlines are a fairly accurate indicator of sentiment among Seeking Alpha's contributors, who now number over 400.

This raises an interesting possibility: Is the sentiment on Seeking Alpha a contrarian indicator that investors can profitably use?

Full disclosure: no position in RIMM at time of writing, long or short.