BlackBerry Tanks: Now What?

| About: BlackBerry Ltd. (BB)
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Shares of BlackBerry (BBRY) tanked in the 3/22 session, following a fairly nice pop from the $13 level to $16 on a string of good news. The crash, unfortunately, was caused by a report from the Wall Street Journal that, quite frankly, paints the BlackBerry 10 launch at AT&T (NYSE:T) as somewhat underwhelming, particularly as AT&T seems to be pushing Apple's (NASDAQ:AAPL) iPhone 5 much more heavily. Now that the shares have shed about 7% of their value during the day, should investors start taking their profits, or is this an opportunity to buy the dip?

Investors: Give It A Chance!

Checks from Detwiler on Thursday suggested that pre-order activity for the new Z10 phone was far below consensus expectations. This negative data point was countered by Jefferies, asserting that once consumers actually get to see the devices, then there will likely be some increased sales momentum for the devices.

Well, for now, I'm going with Jefferies...who would go and pre-order a brand new, unproven smartphone platform when the stores are literally flush with interesting and unique phones from Apple, Samsung, HTC, and others? BlackBerry's main selling point - a unique OS/platform - can't and won't really be appreciated until it has had some time to gain some traction. "BlackBerry" has been synonymous with stagnation and technological obsolescence in the United States ever since the iPhone hit, so it's going to take a little while before we - the investment public - will know whether it's going to be a hit or not.

So for those of you investing in BlackBerry for the "long term," and really believe that the Z10/Q10 will gain some real traction in the smartphone space, the story isn't quite over yet. You're obviously in this stock because you think a year or so from now, the shares will be trading significantly higher than they currently do today on the back of market share gains. This takes time, and won't happen overnight.

But what about the rest of you? The speculators?

The Speculators...Now What?

Let's be honest...most people buying/selling this stock are here to make a quick buck. BlackBerry's Z10 isn't really widely available, sales numbers and velocity aren't known, and I doubt most of the people owning shares in BlackBerry have ever even used a BlackBerry 10 device. You're here, like me, to make money in a fairly near-term time horizon, similar to folks who bet on Biopharma FDA approvals and the like. So, what's next for us?

Without positive newsflow, the stock is likely to continue to drift downward. If there's any more negative news, then I could see yet another swift correction to the downside. As I have stated before, though in my first article in this series, the downside is probably capped to tangible book of $10-$11 per share. When I recently recommended the stock, it traded at $13/share, so in my view downside risk of $3 with upside to at least full book value of ~$18 seemed to be a pretty decent bet, especially ahead of a new product launch. Now, however, the risk/reward doesn't look as good given that the shares sit at about $14.7 (it's fluctuating rapidly so this may not be accurate by publication).

I would wait. I wouldn't initiate a new position here, and I would probably want to wait for signs of a bottom, and for newsflow to start going positive, before buying/adding. Shorting here is probably also a pretty bad risk/reward situation as I think the bulk of the big move downward happened over the last couple of hours. There could still be downside to reap here, but I'm not sure if after an 8%+ move down that I would risk getting short. If it gets really cheap again ($12-$13 level), I would probably be a buyer again, but until that happens I really would rather be on the sidelines.


Risk/reward here just isn't that good for either side right now. It's not cheap enough to go long, nor is it expensive enough to protect me from any potential good news that could help reverse this pop. If you're a long-term believer in BlackBerry, cautiously add to your positions, but if you're here to speculate, the sidelines may be a better place right now.

Disclosure: I am long BBRY. 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.