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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.

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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.


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

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