Yet another new 52 week low for Research In Motion (RIMM) this Monday, coming on the heels of a service outage last week. The difference this time around is that RIMM's CEO actually came out and apologized right away, and the outage affected only 6% of the newly annouced 80 million subscribers for 3 hours, versus a larger chunk of users for days on the previous service disruption.
However, this was enough of an event to cause 5 times the regular amount of volume of RIMM's Toronto listed shares to move the day of the service outage (see chart below). In my recent article on RIMM, I mentioned 1 in 5 RIMM shares are "borrowed" and shorted. I now wonder if this figure is moving closer to 1 in 4 shares shorted.
In examining the 1 year TSX listed RIMM shares chart below, notice that more volume sold on this outage news, than the news that the BB10 was being delayed, or that RIMM was laying off 1/3 of its workforce. The reader will notice that the RSI nearly shows an oversold yet again. The real interesting reaction to observe will be what happens on the earnings release this week. Prior to this service outage news, RIMM shares appeared to want to go higher. It remains to be seen if this is the true bottom for RIMM shares, and this may come at the impending earnings release. It is also worth mentioning that as of today, there is some positive outlook from the cell phone carriers and developers in regards to BB10.
1 Year TSX RIMM chart (for volume example)
For perspective on the outage, consider that a 3 hour outage for 6% of 80 million customers (4.8 million) has forced the share price of RIMM to drop more than 7% in a matter of days. Now compare it to another recent outage at for another Canadian company. There was a recent fire at Shaw Communication's (NYSE:SJR) headquarters in Calgary Alberta, that knocked out Internet service, information access to the DMV, healthcare records, 911 calls, and radio station broadcasts for days! The point here is that in this particular case, more than 6% of SJR's customers were affected by this outage, and a whole host of other stakeholders including government, yet SJR's shares didn't even budge to the downside. Using this example as a comparison, wouldn't RIMM's price movement seem to be an overreaction, or a stampede of shorts taking advantage of some bad RIMM news yet again?
How many readers have experienced an Internet or TV outage at home or at work for longer than 3 hours once or more per year? Or perhaps poor cell phone service, and dropped calls? These events are all considered service disruptions. Another example would be the recent Go Daddy DNS issues, which caused millions of websites not to work. Consider the gross revenue loss for the Go Daddy event, versus 4.8 million people without BB's for 3 hours. Since Go Daddy is a private company it makes it impossible to gauge share price movement however, I doubt it would have the same reaction as RIMM's outage in comparison. The point here is that outages are now common place, and part of our everyday life. Furthermore it also really depends on which stocks have a high short interest, and it is an obvious fact that RIMM has one of the highest short interests today.
In comparison to the Apple (NASDAQ:AAPL) launch, look no further than the iPhone 5 maps issue. Would a mapping issue not be considered a service outage? Personally, not being able to find out where I am going properly on my phone is a service outage. Ben McNeill sums the sentiment up best with his tweet "that's no Moon. It's a space station." -But Apple Maps SAID it was a moon!
It's truly amazing to see the difference on how news is perceived or flogged differently. How about the additional fact that the new iPhone 5 doesn't even come with a near field communications NFC chip? It seems like this would be negative news, but just like Adobe (NASDAQ:ADBE) Flash, if AAPL says you don't need it, then you don't need it. In comparison, any negative news on RIMM is broadcasted to death, whereas other negative news like the maps, and the lack of NFC is pushed aside. If RIMM's new marketing chief is any good, I am looking forward to the potential commercials where a person with the BlackBerry is purchasing an item by swiping his phone, and the iPhone user is standing there clueless. Perhaps as a solution, an AAPL customer can just camp out to buy the iPhone 5s. I am sure AAPL will fix the lack of NFC issue with the 5s. This will be due to the fact that AAPL will need an excuse to be able to have something new for the 5s, otherwise people may have no need to upgrade.
After all how much thinner, faster, lighter, and better screen can we go with smartphones? Apparently a lot more, as Samsung (OTC:SSNLF) is very close to releasing bendable LED phones. Personally, I can see that there will be huge line-ups to grab a new bendable phone, just the same as with iPhones. This is due to the fact of being the first to get a cool new bendable phone. In my opinion, it is not so much the brand anymore, but what is the coolest new gadget, or the soup de jour so to speak. The point here is that the smartphone market share war is far from over, in fact it seems to of just begun. However, most people consider RIMM and Nokia (NYSE:NOK) as a lost cause. I disagree, there will be service outages, missed features, and product recalls/patches similar to that of the auto industry. Consider that the auto industry has many more competitors then in the smartphone industry, yet they seem to be able to survive. The users in the world will not just choose to use 1 or 2 smartphones, just like we all won't drive only 2 types, or brand of cars. This should translate to increased future volatility for the smartphone market in general.
In time the recent RIMM outage will be forgotten same as the last one. This will be a far cry from the "RIMM dead company walking" e-mails I see in my inbox today. All that will matter is how successful the BB10 launch is, and how many of the current 80 million of RIMM users upgrade their phones. No negative news in the world will be able to suppress that catalyst if true. Unless of course RIMM runs out of cash, which I don't see happening. In fact, as of today Thorsten Heins has been qouted saying that RIMM is "making good progress on the cost cutting", and has a clear shot of being the number 3 mobile ecosystem in the world.
As for my personal preference, I will take RIMM's secure network being down for 3 hours once or twice a year, to the alternative of my data and information being compromised by a lack of security. Even if the day doesn't come where a BYOD iPhone or Android is compromised at a large company, and becomes shocking news. With that said, I am sure that many companies and governments truly do value security. As a result these institutions should choose the proactive/cautious route, sticking with their BlackBerry's versus risking a potential security breach.
As for share performance, I am more comfortable in thinking that RIMM will go from $6.50 to $13 per share in the future, versus AAPL going from $700 to $1400. Some of the reasons for this assessment, is the sheer dollar differences, and the dollar differences for the average retail investor to deal with. Most people I know can't afford to hold more than 5 AAPL shares, versus hundreds of RIMM's.
The perfect pair trade would of been to short RIMM, and go Long AAPL in the past few years. My future prediction is that the reverse at some point will be true. The question remains when this change will happen, and when is the time to jump on the train versus standing in front of it.
Charts Courtesy of RBC Direct Investing
Disclosure: I am long RIMM. 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. I am also long RIMM 2014 LEAPS