It's been about a month and a half now since Research in Motion (RIMM) issued an absolutely dismal earnings report. Not only did the company report revenues and earnings well below street estimates, but they announced yet another delay to the BlackBerry 10 phone release. Shares took a dive, rightfully so, and hit a new 52-week low.
As I've detailed several times before, including once in January, there is always some piece of news that makes this stock bounce off its lows. Usually, it is some sort of rumor that the company could get bought out. When I was following this name a year ago at $25 a share, those rumors were there. How true did they end up being? Not much. Then in January a new set of rumors, that names like Amazon (AMZN), Microsoft (MSFT), and Nokia (NOK) were looking at purchasing RIMM, popped up. That pushed shares up from $12.50 to $18. Again, it didn't happen. Then again, on March 29th, when the company announced another bad quarter, management stated it was pursuing strategic initiatives. The next day, that pushed shares up $1, hitting an intra-day high of $14.99. The buyout hope faded quickly, and we have not seen shares above $14.67 since that day. In fact, they've plunged even more.
So on July 23rd, Research in Motion hit the latest 52-week low of $6.56. Just a week ago, on August 3rd, shares closed at $6.99. But a new set of rumors pushed the stock up $1.30 last week, now sitting at $8.29, after hitting a hit of $8.49 on Friday. Why? Well, another round of buyout rumors. Volume, which totaled about 23 million shares combined between Monday and Tuesday, totaled over 120 million the next three days. But again, after this 26% rally, I think we can go back to shorting the stock again. The rumors keep coming, but when have any of them been true? Even if Research in Motion does make a move, it is likely to be a very small one, and I'll get to that later. Let's look at the latest round of rumors that have put even more false hope into Research in Motion shareholders.
The rumors started in late July, when filings showed Canadian investor Prem Watsa had increased his investment in RIMM. Fairfax Financial, an insurance firm run by Watsa, doubled down on RIMM, becoming the company's largest shareholder, at nearly 10%. However, it seems that those believing Watsa is pushing for a sale of the company are out of luck. Watsa has reiterated his stance that this is a long-term investment and that he believes a full RIMM recovery could take three to five years.
The second piece of news came when the company announced a new PlayBook tablet. The 4G LTE tablet will feature 32GB of memory and went on sale in Canada August 9th, and will follow in other countries over the next few months. Given the lackluster sales of the previous PlayBook, which basically sold as many units in a year that Apple's (AAPL) iPad does in a week, it is unlikely that the PlayBook launch will do much for sales and earnings.
Research in Motion started rallying harder after a Jeffries' report suggested that Samsung (SSNLK.PK) could be interested in licensing the BB10 operating system. However, the analyst noted that he only saw a potential boost to RIMM's calendar 2013 earnings by $0.36, helpful, but not a game changer. Shares of RIMM jumped 4% on Wednesday after that news came out, and were up double digits percentage wise at times. However, the analyst did also reiterate his underperform rating on the name as well as a $5 price target. Hardly positive in the end, especially after Samsung again shot down takeover rumors.
Then on Thursday afternoon, RIMM shares spiked in after hours trading after a Bloomberg report surfaced that IBM (IBM) was informally approaching RIMM about its enterprise services unit. This would definitely be a sharp turn for RIMM, which apparently turned down this idea months ago, leading to the departure of co-CEO Jim Balsillie. Many have shot down the idea of RIMM selling this unit, saying that the company wants to release the BB10 phones before making any large scale decisions. The Wall Street Journal then reported that RIMM might unload its Newbay mobile content unit. The so-called cloud service provider, which RIMM bought for $100 million in October 2011, could be sold for a loss.
So another round of rumors has hit, and if you notice, they are getting smaller in scale. In previous months, the rumors consisted of Research in Motion being bought out completely. Now they are down to a licensing deal here or there, or RIMM selling a small cloud service provider. This company has one mission right now, and that is to get out the BB10 phones before any more delays. They don't appear to want to do anything major before the BB10 launch, and they probably shouldn't waste their time. They are behind the curve already.
So here's where things stand, financially. For the current quarter, ending in August, analysts see the company posting a 40% decline in quarterly revenues to $2.5 billion from last year's quarter of $4.17 billion. Earnings per share are forecasted to shift from an $0.80 profit to a $0.46 loss. The company will report in late September. The company also has announced it will start burning through cash (a large cash pile has been something bulls have thrown out as a positive over time) as they continue towards the BB10 launch.
For the current fiscal year, which is expected to contain the BB10 launch in January or February, analysts are expecting a 45% decline in yearly revenues to $10.2 billion. Earnings per share are expected to decline from a profit of $4.20 to a loss of $1.50. Remember that the current fiscal year ends in February, so the BB10 launch will be late in their Q4 and will miss the important holiday season. For the following fiscal year, ending in February 2014, analysts expect revenues to drop below $10 billion, although the overall loss is expected to narrow. Remember, this is a company that did nearly $20 billion in revenues for the period ending February 2011, and that is expected to be halved in just two years.
So after the latest round of rumors, it appears that you can go back to shorting Research in Motion again. This company continues to struggle towards the BB10 launch, and we keep hearing new rumors every few months. What has that done to the stock? Well, after an initial push higher each time, we've just fallen to new lows. The latest week has produced more rumors, but for shareholders, less hope.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.