Research In Motion - The Next Big Move

| About: BlackBerry Ltd. (BBRY)

Those looking for a big move in Research in Motion (RIMM) shares, your time is coming. Next Thursday, the BlackBerry and PlayBook maker will report its fiscal second quarter results, after the bell, with a conference call scheduled for 5pm. It's been a rocky two years for this company, with shares close to $70 in early 2011 and now struggling to hold the $7 mark. The long-term survival of this company depends on the launch and success of the BB10 phones, scheduled for calendar Q1 of 2013. Now remember, this is going to be a difficult quarter for the company, as they told us at last quarter's report:

"The company expects the next several quarters to continue to be very challenging for its business based on the increasing competitive environment, lower handset volumes, potential financial and other impacts from the delay of BlackBerry 10, pressure to reduce Research In Motion's monthly infrastructure access fees, and the company's plans to continue to aggressively drive sales of BlackBerry 7 handheld devices. The company expects to report an operating loss in the second quarter of fiscal 2013, as RIM continues to invest in marketing programs and continues to work through the transition to BlackBerry 10, as well as the company's fixed costs being allocated over a lower volume of shipments. This outlook excludes the impact of charges related to the CORE program."

Next week's earnings report will have some importance, so here's what to look for, for both long and short investors.

Revenues and the top line:

Current analyst estimates call for a 40.2% drop over last year's period, from $4.17 billion to $2.49 billion. Some may think that is too much, and that RIMM has no chance of missing estimates. Well, just remember, last quarter they were expected $3.1 billion (a drop of 37%), and they came in at $2.8 billion (a drop of 43%). Overall, estimates range from $2.21 billion to $3.2 billion.

The bears are hoping that revenues come in around the $2.2 to $2.4 billion area, which would be a 45% drop. Anything worse than that, like a 50% drop or more, would signal that not only is the company not selling its old inventory (and the new PlayBook), but that it has had to significantly cut prices as well.

The bulls are looking for a range of $2.6 to $2.8 billion, or a drop of just 35%. That would imply that the PlayBook has potentially sold decently, and that the company has been able to maintain some pricing on the old inventory it is trying to clear out.

Earnings per share - the bottom line:

Current analyst estimates call for a loss of $0.47 per share, compared to a profit of $0.80 in last year's period. Now remember, this is the adjusted loss, because RIMM might take some charges (restructuring, goodwill, etc.). The range is from a loss of $0.13 to a loss of $0.72. Last quarter, RIMM was expected to come in at a loss of $0.04, and they actually lost $0.37, a much larger than expected loss.

In this case, bulls are probably looking for a loss of about 30 cents per share, while bears are looking for about a 65 cent loss. Now it may not seem like much, a few pennies here and there, but it certainly is. At the end of the previous quarter, the weighted average number of shares outstanding was 524.16 million. That means that for every penny the company loses, that's over $5 million. So the difference between a loss of 30 cents and 65 cents is about $180 million. Remember, the first line in a company's cash flow statement (and cash flow from operations) is net income. The company losing $200 million instead of $350 million, or vice versa, will have an impact on its cash position.

Cash pile - the only hope:

One thing that Research in Motion investor bulls have held onto is the fact that RIMM has a substantial cash (and investments) pile. At the end of the fiscal first quarter, that pile was at $2.2 billion, which was a little more than $4 per share. That's a lot.

Now the company told us in the last report that they expect to burn through cash due to operating losses, restructuring, and the BB10 launch. The real question is, and one which may determine the company's future, is how much do they burn through this quarter?

It will first depend on how much they actually lose this quarter, which I pointed out in my last segment. I think bulls are hoping that the cash pile comes in around $2 billion, while bears are hoping for about $1.5 billion. The size of the cash pile could well be the key as to where this stock is 2 weeks from now, assuming no BB10 updates (more later).

Remember that when it comes to the cash pile, the company's next quarter (fiscal Q3) is expected to be worse in terms of revenues and about the same in terms of earnings. That's another full quarter of cash burn, and then we still have another month or two until the BB10 launch, as currently scheduled. The cash pile number may be the single most important financial number at this quarter's report.

BB10 - do we get an update?

Research in Motion is falling behind by the day. Apple's (NASDAQ:AAPL) new iPhone is out, and pre-orders topped more than 2 million in the first 24 hours. That is twice as many as the iPhone 4S, and a lot higher than the most bullish analysts out there. As Apple sells millions of iPhones each week, the potential market for BB10 phones decreases and decreases. Windows 8 powered phones are also expected out in late October or early November.

So the latest expectation for the BlackBerry 10 launch is early to mid January in Canada, with a launch in the U.S. and other markets coming a few weeks later, perhaps the first week of February.

At next week's earnings report, I do not expect a formal launch date from the company, since we are still a few months out. It would probably make more sense to set a launch date at their next earnings report, scheduled for late December. Setting a date this far in advance could backfire if they are delayed, and this stock has been knocked down by continuous delays from this company. My personal expectation is to hear something similar to the last report, along the lines of "BB10 launch is on schedule for sometime in calendar Q1 of 2013."

If this company makes a change in the expectation for a launch date, this stock will definitely move on the news. Obviously, anything earlier will be positive, but if they delay the launch, this stock will plummet, just like it did last quarter, since investors were hoping then for a pre-2013 launch. That sent shares down 19%.

Conclusion - things get interesting again:

How bad have things gotten at Research in Motion? We will find out next week. The company's third quarter results will show how financially sound the company is, but also should provide a glimpse into the third quarter as well. The key financial number to look at will be the cash and investments pile, to see how fast cash is being burned. Investors will also be listening very closely for updates on the BB10 launch, although I'm not sure how much information RIMM will provide.

With shares currently at $7.21, I think that $5 is where we head on any more bad news, and there's an outside chance at $10 on any good news. I will not personally make a trade on this name before earnings, but for those looking for the next move in Research in Motion, it should come at the end of next week. Given how this company has disappointed several times in the past, I am continuing my short recommendation on the name (which I started with the stock well over $20), although I will admit there is a fair amount of risk shorting this name into the earnings (both sides of the trade are fairly risk through earnings).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over 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.