By Brendan Gilmartin
Research In Motion (RIMM) will report 1Q 2013 earnings after the close of trading on Thursday, June 28 with a conference call to follow at 5:00 p.m. Given the speculation surrounding a potential takeover and market share losses from intensifying competition in the smartphone market, commentary on future initiatives and corporate developments (M&A, strategic evaluation, etc.) is more likely to overshadow the quality of the earnings. For that matter, the RIM already announced on May 29 it was anticipating an operating loss for the 1Q and will refrain from offering quantitative guidance for future periods.
Outliers & Strategy
- While much of the attention is likely to center on corporate developments and commentary, estimates are as follows:
- Adjusted Earnings Per Share (EPS): The current Street estimate is for a loss of (-$0.01), with some forecasts as low as (-$0.35) (Source: Yahoo Finance).
- Revenues: Revenues are seen dropping 36.6% to $3.11 bln. A beat on the top-line could prompt short-covering.
- Even with RIM shares down close to 70% YTD, more than 15% of the float remains short, implying more possible downside risk.
- Commentary from CEO Thorsten Heins is more likely to dictate the direction in RIM shares after the earnings are released. Recall Mr. Heins confirmed in late May that RIM was hired JPMorgan Securities LLC and RBC Capital Markets to assist in reviewing RIM's business and financial performance while conducting a comprehensive strategic review.
- 06/25: Morgan Stanley slashed its rating on RIM from Equal-Weight to Underweight according to Barrons. The firm cited broader weakening in the smartphone market, an aging product portfolio, and pause ahead of the BB10 software launch.
- 06/14: RIM announced the BlackBerry® Bold™ 9930 will be available in China through the sales channels of China Telecom.
- 05/30: Despite warning of an operating loss for the 1Q period, JMP Securities upgraded Research In Motion to Market Perform, according to a report on CNBC.com. The analyst pointed out the current price reflects the anticipated weakness and that M&A speculation, along with a valuation rally, short covering, and more than $2.0 bln in cash could push the shares higher.
- 05/29: President & CEO Thorsten Heins warned financial performance would remain "challenging" the next few quarters, citing the competitive landscape and challenging pricing dynamics, resulting in an operating loss for 1Q 2013. Despite the cautious guidance, RIM expects to build on the $1.2 bln cash position from the end of 2012, and deliver $1 bln in savings by the end of 2013.
RIM shares have fallen close to 70% over the past year, dipping to multi-year lows. While the momentum oscillators (MACD and RSI) are registering oversold conditions, the fundamentals suggest RIM faces further downside risk. If the earnings release yields positive developments, look for a potential rebound toward $10 - previous support from early June, followed by $11. Given the high level of short interest and cost to borrow, the announcement may also trigger an uptick as traders rush to cover. (Chart courtesy of StockCharts.com)
RIM shares have collapsed over the past year due to a litany factors, including competition in the smartphone market, weak pricing dynamics, and a stale product line. With that being said, the attention is likely to center on the management commentary accompanying the financial results, given the previously issued forecast on May 29 for an operating loss in 1Q and sluggish outlook. Heavy short interest, plans to seek strategic options (M&A, partnerships, divestitures), a heavily oversold technical picture, a large cash stockpile, and extensive cost-cutting may help to put a near-term floor in the share price, regardless of how disappointing the 1Q results turn out to be.
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