This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

BlackBerry Financials Continue to Improve; Shorts Run for Cover

NEW YORK (TheStreet) -- Mobile communications provider BlackBerry (BBRY - Get Report) shareholders can exhale again after the company's fiscal first-quarter 2015 results improved more than expected.

Investors were expecting another link in a chain of five quarterly losses but instead were greeted with a profit and a reaffirming of guidance. Shares immediately soared in premarket trading and opened at more than $9 for the first time since March.

BlackBerry reported a $23 million GAAP profit, or 4 cents per share. After removing one-time items, the reported net loss was 11 cents per share, markedly better than the 27 cent-per-share loss expected by analysts.

Operationally, the company expanded gross margins by 5% to reach 48%. A changing product mix is enabling BlackBerry's margin expansion and makes it difficult to make meaningful year-over-year comparisons. In North America, BlackBerry has all but exited the low-end consumer handset space after Apple (AAPL) and Google's (GOOG) phones destroyed BlackBerry's market share.

I've remained bullish for more than a year and continue to believe shareholders sitting on their hands and waiting will be rewarded. I'm even bullish on the handset division in some areas of the world. It's easy to dismiss the handset business as a total failure, but it's simply not the case. BlackBerry reported the launch of the Z3 device in Indonesia, one of the largest and fastest-growing markets in the world.

Next week, BlackBerry is expected to release the Z3 in India, the second largest smartphone market, and seven other countries soon after. The Z3 is the first phone made in China by Foxconn after BlackBerry contracted the low-end manufacturing to the Chinese company.

The Asian Pacific market sales increased 8% from last quarter, and it's reasonable to assume sales will continue to increase for the current quarter. Handset sales face intense competition in every market, but Apple isn't the dominating factor in the Indian and Indonesia markets as it is in North America.

Fueling the rise in share price is an army of short-sellers scrambling to cover. Almost one out of every five shares traded is shorted. A short sale is when an investor borrows shares from a shareholder and then sells the shares, believing the stock will fall in price. If the price falls, the short-seller can buy the shares for less than they sold them and bank the difference.

The flip side is when the shares don't decline and appreciate; the short-seller faces increasing losses as the stock climbs. Short-sellers buying to cover can cause a chain reaction in which the rising shares cause more short-sellers to cover and buy. It's known as a short squeeze, and BlackBerry is a perfect storm for shorts.

Short-sellers thinking the company's financial situation would continue to deteriorate are reevaluating their bear thesis. BlackBerry's CEO John Chen reaffirmed guidance that the company will become cash flow neutral by the end of fiscal 2015 (this fiscal year).

At the current rate of progress, there's little reason to believe it won't, and that's bad news for short-sellers, but great news for shareholders.

IBM Fights for Respect and Relevance on Rough Seas of Investor Confidence

5 Reasons to Change Your Outlook on Emerging Markets

Why SolarCity Is Shining Once Again for Investors

BlackBerry Shares Break Out: Must-See Technical Charts on Earnings

At the time of publication, Weinstein had no positions in securities mentioned.

Google+

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BBRY $8.29 0.00%
AAPL $124.53 0.00%
FB $85.80 0.00%
GOOG $521.52 0.00%
TSLA $262.02 0.00%

Markets

DOW 17,596.35 -350.33 -1.95%
S&P 500 2,057.64 -43.85 -2.09%
NASDAQ 4,958.4680 -122.0370 -2.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs