Research In Motion Ltd (BBRY): Who’s Shorting This Stock?

Research In Motion Ltd (NASDAQ:BBRY) BlackBerry, is questionably one of the most debated stocks in the market. From the top executive being driven in a Rolls Royce in Wall Street to the small business owner in Main Street, the BlackBerry argument has managed to capture a compelling number. In all of this, bears and bulls have been divided in a fashion reminiscent of the infamous Berlin Wall. The raging war between these two extremes has raised concerns that there is more to fight for in Research In Motion Ltd (NASDAQ:BBRY) BlackBerry; not just some chic black handset, but money — big money.

Research In Motion LtdOver the past year, it has come out that the short interest in Research In Motion Ltd (NASDAQ:BBRY) BlackBerry has increased faster than a coalition of famished cheetahs hunting on the African Savannah. Reports relating to late April show that around 100 million shares were added short in the last 12 months; 40 million of which were added this year alone. Currently, around 164.69 million shares are shorted. This represents 33.3% of the total float; a tremendously huge number when compared to Apple Inc. (NASDAQ:AAPL)’s short interest which comes in at a paltry 2.4% of the total float.

Shorts want the share price to take a dive; something that has not happened as of yet. If anything, Research In Motion Ltd (NASDAQ:BBRY) BlackBerry’s stock has gained 25% this year, surpassing the 14% gain of the S&P. The tremendous short interest in BlackBerry explains all the suspect reports; most recently by Pacific Crest.

Pacific Crest versus Jefferies

In an early May report, Pacific Crest advanced a bearish case on Research In Motion Ltd (NASDAQ:BBRY) BlackBerry, citing lower-than-expected sales moving forward. The key highlight in the report was, however, not the lower than expected sales, but rather the expected production cutbacks. As a result of the report, BlackBerry’s share price dropped notably.

Pacific Crest used the last two months’ sales estimates to warrant its bearish stance. In each of the last two months, unit sales are estimated to have settled in the range of 1 million to 1.25 million units. Pacific Crest analyst James Faucette however ventured that Research In Motion Ltd (NASDAQ:BBRY) maintained production in the range of 1.5 million to 2 million units. Faucette added that BlackBerry would have to reduce production at some point in order to avoid a possible inventory glut.

After the bearish report, research firm Jefferies went ahead to publish a counter report. Jefferies’ Peter Misek argued that there was no evidence supporting the bearish case on BlackBerry. After conducting retail checks in the U.K and Canada, Misek affirmed that demand for both the Q10 and Z10 was high. He further added that the only possible cuts would be for the BlackBerry 7, which in turn could help margins.

This evident tag of war between the two research firms opened up a flurry of debate on multiple investment platforms. In each argument, however, the common thread that cut was the presence of overbearing short interest in Research In Motion Ltd (NASDAQ:BBRY).

U.S. case overdone

BlackBerry’s slow progress in the U.S. has been overdone. Some have even cast doom on BlackBerry, saying that Nokia Corporation (ADR) (NYSE:NOK), its fellow turnaround player, is making more progress in the U.S. Kantar World Panel argues that Windows Phone penetration in the U.S. outpaced Research In Motion Ltd (NASDAQ:BBRY). As noted in an article (here), BlackBerry’s U.S market share in the quarter ended March came in at a paltry 0.9% compared the Windows Phone’s (which is essentially Nokia) 5.6%. Nokia Corporation (ADR) (NYSE:NOK)’s Windows Phone commanded 3.2% of the U.S. smartphone market in January 2013, signaling a huge gain in just two months.

I don’t have anything against Kantar’s research. What I stand against, however, are the conclusions that were made. Some analysts wrote off BlackBerry exclusively on this report, forgetting that BlackBerry is bigger than the U.S. If anything, Nokia’s global market is buffed up by its feature phones.

Headway in other key markets bigger than U.S.

In key markets such as India, bigger smartphone competitor Apple Inc. (NASDAQ:AAPL) has launched a discount program that, so far, has impacted sales positively. In fact, analysts expect Apple’s sales in India to double to more than $1 billion by the end of the fiscal year. The iPhone maker is giving 25% discount on the older iPhone 4 models through an iPhone exchange program. What Apple has to worry about however is Samsung. The South Korean tech giant has also introduced an equally formidable discount program. In an attempt to bolster its India sales for key products, Samsung is spending millions to publicize its 15% discount on its prime products.

This recurrent tussle between Samsung and Apple has inevitably created a leeway for BlackBerry. As Apple and Samsung get embroiled in their timeless war, BlackBerry will have sufficient time to tout its new cheap data plan for Indian states. The cheap data plans will be sold for older Curve and Bold models, allowing the Ontario-based smartphone maker to maintain a leash on its middle and lower segment market share.

India aside, BlackBerry has a lot of opportunity in Africa. Recently compiled statistics show that BlackBerry’s African market share in the first quarter of 2013 was 10.2%, compared with 4.34% at the onset of 2013. In most parts of Africa, BlackBerry still has cool brand perception — cooler than an iPhone to a sixteen year old. If BlackBerry can offer cheap data plans, along with other budget propositions to Africa, it can greatly widen its addressable market.

Conclusion

Forget what the critics say — most of it represents the interest of short traders. BlackBerry’s resurgence will hold despite the lingering negative rumors that have given it the by-name ‘rumors in motion’. The Ontario, Waterloo-based handset maker is a strong buy for long-term investors.

The article Why You Should Ignore the BlackBerry Shorts originally appeared on Fool.com and is written by Lennox Yieke.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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