I wrote about $RIMM when it was trading at $7.50 – Is RIMM cheap enough? – and opined that the stock had another $1.25 in downside. The stocked bottomed two months later at $6.22 and has over doubled since, to a current $14.74.
The basis of that call was all about the worst-case scenario – the company’s liquidation value. I did not – and still do not - think that the company will succeed in the long term.
Some people (some of whom I respect a lot) think that there will definitely end up being a third player in the mobile wars. $AAPL’s IOS & $GOOG’s Android currently control most of the smartphone market.
If you subscribed to that thesis, $MSFT would have been the easiest choice. Yet despite an operation system which most considered up to par (and in some cases even better than) Android & IOS, Windows Phone 8 has received very little traction.
I don’t think you can blame it on the hardware either, as some of $NOK’s phones are very comparable to the top line $AAPL and Android phones. $MSFT has also ramped up the amount of Apps, and have also invested tons of money in advertising to gain awareness and traction etc.
The obvious reason it hasn’t worked out for $MSFT (yet), is because they wanted and needed people to switch to a new & unproven operating system. There’s a bit of chicken/egg dilemma with regards to developers friends/ecosystem etc. There is also nothing pushing people away from their current “comfortable” phones.
So why would anybody assume $RIMM will succeed? They have a lot less money to burn than $MSFT. They have fewer partners. They have fewer unique add-ons like Skype & Xbox. Just like $MSFT, their reputation in the mobile space is shot. The only thing they have going for them is their existing user base, and this is something $MSFT did not have. But this is where I think people’s “hope” and “prayer” in BB10 is wrong. They’re relying on their existing user to upgrade from both their current phone (hardware), and from their current operating system, at one time. Why would they chose BB10?
Ask a current Blackberry Bold user why he/she has yet to switch to another phone. I’d wager that most either “need” their keyboard, or they don’t want/need a “computer” phone – they currently use and only want to use their phone for phone calls and emails. If they didn’t need the keyboard, and/or wanted a “real” smartphone, they would have already switched to Android/IOS years ago (with the rest of us).
We’re talking about an ecosystem here. It’s all about the apps, the connectivity of different programs and services. I think it’s extremely safe to assume that very few IOS or Android users will switch to BB10, and again I think any “old school” blackberry user would either stick with their own “comfort” phone, or make a move. Yes, BB10 is one of the options for that move but because we’re talking about a new OS, and a new phone (with most of the new phones without keyboards) it is only one of the options. It is not an automatically assumed upgrade like say upgrading to Android Ice Cream or IOS 6. If you had a prior version of an existing OS, the conversion to the newer OS is a very strong probability. The same goes on a typical hardware upgrade – say moving from an Android HTC to a Galaxy S3 (my recent phone upgrade) – the software was the same – the same OS, so while the hardware was an upgrade, it wasn’t a huge change. (Same with iPhone 4 to 4S/5.)
$RIMM is trying to get people to switch both. And we’re talking about a huge switch (at least I would hope so (for $RIMM’s sake)) – both on the software side and the hardware side. So why would current users go ( – and that’s the key word – they’re going to a new platform, not staying in the same place -) to an unknown, unproven, and assumed inferior OS?
Yes, there will be buyers of the new BB10 phones, but will it succeed to compete with IOS and Android? I highly doubt it. Will it gain enough subscribers to make it sustainable? I doubt this as well. Keeping in mind, without enough scale, developers wont come, and the entire platform eventually collapses.
Let me rephrase: I just keep thinking this action in $RIMM is CLASSIC buy on the rumor, sell on the news.
— Herb Greenberg (@herbgreenberg) January 16, 2013
While impossible to time, I’m looking to purchase Put Spreads on the stock. Based on the company’s last filing, I think (based on my discounted fair value TBV) the downside is around $7.80.
A June 2013 $12/$10 Put Spread would cost around $0.71, but because of my TBV assumed floor of $8, I would sell an additional $8 Put to lower the cost to around $0.28 (you are “naked” on this second put, so the stock falling lower than $8 would have an adverse effect on the trade).
If the stock trades between $8 and $10 at expiration, you are at your max gain of $1.72 ($2 minus the $0.28 cost), and your break-even price is $11.72. You max loss on the upside (say if BB10 does take off and the stock triples to >$40) is $0.28, but on the downside, if the stock falls under $8 you can lose a lot. At $0 for example - your true max loss – you would lose $6.28.
This obviously is not a recommendation, and any Options trading should only be done by sophisticated investors etc.
UPDATE: (1/16/2013 10:15PM) – Full Disclosure: I have NOT put on this trade, and will be looking to enter into it (or something similar) sometime in the next week or two. Ideally, i would try to get the above Spread for zero cost, or even as a Credit spread.
UPDATE: (2/11/2013 2:30PM) – Here are the trades I executed in relation to this post…
— MicroFundy (@MicroFundy) January 18, 2013
— MicroFundy (@MicroFundy) January 22, 2013
Buying back some of my short $RIMM 10 calls – will result in some vanilla 12-8 put spreads.
— MicroFundy (@MicroFundy) January 24, 2013
— MicroFundy (@MicroFundy) January 28, 2013
— MicroFundy (@MicroFundy) January 30, 2013
— MicroFundy (@MicroFundy) February 4, 2013
— MicroFundy (@MicroFundy) February 4, 2013
— MicroFundy (@MicroFundy) February 5, 2013