Name That Trade – $BBRY: Expired Passport

by Dan December 4, 2014 1:20 pm • Commentary

It’s confirmed. Blackberry has sold at least two of their new square Passport smartphones in Australia and here in the U.S. to two late adopters that write for Business Insider:


I got to hand it to these crafty Canadians. They have had 9 lives in the last few years. The fact of the matter is that they are still here, but I am not sure for how much longer in their current form. At least on the hardware side with designs like the Passport.  There hasn’t been any take-over talk lately, and I haven’t seen too many sum of the parts valuations floated either. The story has been well picked over by would be acquirers and activists who would be inclined to break it up.

BBRY has a $5.6 billion market cap, $2.7 billion in cash, and $1.5 billion in debt. When you put the net cash together with their patent portfolio that some view as being worth between $1 and $2 billion and their enterprise network which is worth maybe $1 billion the stock looks cheap.  As recently as last month, CEO John Chen stated that their focus was reducing cash flow burn and returning to profitability (watch here). He’s telling the same story as his predecessors.

But phones are accessories. And devices like the Passport are an eyesore. And you have to wonder for how long blackberry users will stick with this garbage (look at that photo!)  It seems like any investor enthusiasm is now related to potential opportunities in enterprise software, highlighted by the company’s recently announced partnership with Samsung for Android devices.  I suspect almost everything they do here is too little too late.  And why doesn’t Samsung just buy BBRY. Why buy the cow when you can get the milk for free?

All that aside, the set up in the stock is fascinating.  The stock has had 42% year to date gains and short interest is still as high as 22% of the float. Wall Street analysts HATE the stock with only 1 Buy Rating, 23 Holds and 12 Sells with an average 12 month price target of $9.70 (below where the stock is trading.)  The stock is clearly controversial which is evident by the high levels of options prices, 30 day at the money implied volatility is at 60% (blue line below):

from Bloomberg
from Bloomberg

Technically, the chart looks pretty healthy with near term support between $9 and $10, but that’s a fairly wide range to the downside:

BBRY 1yr chart from Bloomberg
BBRY 1yr chart from Bloomberg

The next identifiable catalyst will be the company’s fiscal Q3 results on Dec 19th. The company held an analyst meeting in mid November, and the stock has traded down since, as an already skeptical analyst community walked away less than impressed (Morgan Stanley downgraded the stock read here). The stock could move following the results and guidance. CEO John Chen will need to put up the numbers to maintain any credibility.  

We’re not initiating a trade but for those who happen to be long or want to be long we suggest a stock alternative to long stock. The Feb 10 calls are reasonable vol and can be bought for around 1.35. That’s a break even just .85 above where the stock is trading which isn’t great but it’s not terrible considering that you have unlimited upside above that (if it goes higher it’s probably a lot higher or why be n the stock) and you’ve defined your risk much better to the downside. We’d rather own those calls than the stock here.