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.
How to trade it? Like #FF list‘s @herbgreenberg tweeted earlier today:
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…
In the first of my $RIMM Put Spreads explained here —> stks.co/fJgF @ .25
— MicroFundy (@MicroFundy) January 18, 2013
Looking to add a few more $RIMM Put Spreads detailed here- stks.co/hJty – , now down to ~.23
— 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
Bidding for some more $RIMM Put Spreads (at .19-.20) outlined here —> stks.co/gKFy
— MicroFundy (@MicroFundy) January 28, 2013
My $RIMM Put Spread trade idea ( stks.co/q1EE ) is up around 70% (on average cost of .22) – now at .37. Peeling some off.
— MicroFundy (@MicroFundy) January 30, 2013
Bidding to sell some more of my $RIMM / $BBRY spreads at .36 (+70% if fill)
— MicroFundy (@MicroFundy) February 4, 2013
Got filled on some of those Put Spreads at .36. $BBRY $RIMM
— MicroFundy (@MicroFundy) February 4, 2013
Sold rest of $RIMM $BBRY Put Spreads at .32-.33 (+~55%). Will revisit closer to US launch.
— MicroFundy (@MicroFundy) February 5, 2013
- MicroFundy
while i agree that RIMM has a lot of problems to solve, i´m not buying the new OS argument.
what will most these 79m subscribers do?
-sit forever on their aging BB device?
-switch to a new device AND a new OS (nokia,apple,android)?
-or switch to a new OS (with a familiar name) and a proven device (keyboard version comes within weeks of BB10 debut)
the personal/private workspace setup could be a killer feature for the new iOS.
also i think that while many won´t believe it but AAPLs stock is sinking because there are too many people owning that device. maybe, just maybe it becomes trendy again, to use a device that few people own, differrentiate yourselve from the masses… by owning a BB…
i wouldn´t buy any calls/puts without any data. i think carriers will push the new devices since they got RIMM to lower their service fees. a successful third or fourth OS, hence more competition between manufacturers (=lower subsidies) is in their best interest.
so q1 should be succesful. what happens after the initial upgrade wave (and how lower service fees will impact their bottom line) will determine the future of the stock.
That’s what makes markets.
Keep in mind, they only have 20-30M subs in developed markets, and most emerging market users wont be able to afford a $600 ASP price point.
I believe some will CHANGE (not upgrade) to BB10. I think many will not.
i agree with you on the emerging markets. although i don´t know their customer structure there. corporate customers might have the ability to upgrade. but they will have to adress these markets with cheaper phones. RIMM should be able to do that because they always sold different devices at a time. at the same time it´s hard for Apple to come up with a cheaper iphone because it would hurt their elite, exclusive image which contributes a large part to their success imo.
regarding the expiration month you´re targeting – from Miseks note:
http://blogs.barrons.com/techtraderdaily/2013/01/18/rimm-jefferies-ups-to-buy-on-improving-bb10-support-fusion-prospects/
“…More recent checks indicate that the carriers have also agreed to volume commitments for the first two quarters post-launch…”
the note is worth a read. like you he has a 45% probalilty of RIMM failing eventually.
addition:
here´s a number on their corporate customers (who should be able to afford the new devices). from a (sell) city note:
http://blogs.barrons.com/techtraderdaily/2013/01/22/rimm-city-says-sell-bb10-sell-through-services-rev-still-uncertain/
“…enterprises (comprise less than 50% of total 79mln subscriber base)…”
What about selling out-of-the-money calls, for example Jun’13 $28 strike for 0.46? You could make that a zero spread trade if you sell a few more of those calls.
interesting analyst note (former RIMM bear) on channel inventory and an interesting take on the service revenue issue: http://notablecalls.blogspot.de/2013/02/blackberry-nasdaqbbry-getting-ready-for.html
Thanks for sharing!
I agree with your option strategy, however, I would skip the 8… This is a make or brake deal, if it don’t make, you loose big time on a good call. I would prefer just naked 12P with some nimble management, if it starts to pan out…. I would not worry about the cost, I would think about timing.. This is a $6 -7 stock just waiting to happen…. BTW, I made a bundle on the long side, my basis was hype…
Congrats on the long. I already bought & sold the spreads, (will update the post with the tweet “timestamps”.) I might re-enter the trade (or similar one) closer to the US launch.
By continuously referring to Blackberry as RIMM, it is apparent you could never be unbiased in an article to do with them. It shows complete immaturity, school yard antics and lack of respect. You are trying to keep them stuck in the past, as are many writers whose sole mandate is to continuously dwell on the past and the negative rather than the positive. Have you spoken to any of the distributors of the BB10 in Dubai or any of the other in the UAE in respect to the success of the launch. Did you know that one distributor said it looks like BB10 will be one of the best sellers this year? Why don’t you cover that? I’ll tell you why. You’re afraid it will succeed. These article writers all keep reporting on the negative to protect their prior articles as their egos will be crushed when they are all wrong.
Enter BB10
I typically would just ignore your comment, but I decided to clarify a few things…
I wrote this post when the name of the company was still Research In Motion.
I use stock symbols to refer to almost all companies in all of my posts.
I don’t report news, I write about ideas/thoughts that i have.
I have written favorably about $RIMM when the stock was $7.50 – http://microfundy.com/2012/07/02/is-rimm-cheap-enough-12/
Hope this helps some.