Updated from 12:40 p.m. EST
Research In Motion
jumped 47% Tuesday after the maker of BlackBerry handheld devices reported earnings that sharply beat expectations. The company swung to a profit and forecast two quarters of earnings well above Wall Street expectations.
Shares shot up $21.67 to $67.77 on Tuesday -- an astonishing move even by the standards of a bullish tech market. Much of the action is likely due to Research In Motion's ever-brightening outlook. Tuesday morning, a passel of banks upgraded the stock to buy, including Pacific Crest, Bear Stearns, J.P. Morgan, SG Cowen and ThinkEquity.
Many firms also dramatically upped their earnings outlooks: ThinkEquity, for example, boosted 2004 earnings-per-share estimates from 47 cents to 92 cents. For 2005, the bank hiked its estimate from 97 cents to $2.83.
But the wild move in RIM's stock price also came as shorts raced to cover their positions. RIM shares were heavily shorted going into Monday's earnings report: According to the most recent information, as of November, 14.65% of the float, or 8.45 million shares, were sold short. (Another big short favorite,
touched an all-time high on the Nasdaq Tuesday.)
After the bell on Monday, Research In Motion reported sales of $153.9 million, up 107% from last year's levels and above analysts' consensus estimate for $146.4 million. Net income amounted to $16.3 million, compared with a loss of $92.8 million a year ago. On a per-share basis, profit stood at 20 cents a share, according to generally accepted accounting principles.
RIM took a charge of $9.2 million, or 11 cents a share, to cover the costs of litigation. Excluding those costs, RIM's adjusted net income per share would have been 31 cents. On a pro forma basis, analysts had expected 17 cents.
"RIM is displaying very impressive growth, and we believe the company will continue to do so well into next year," said Gus Papageorgiou of Scotia Capital in a note. "Many of the company's new products (integrated voice/data devices, smaller sized BlackBerries, color screen devices) have only recently begun to impact the revenue line, and many of RIM's carrier partners have yet to fully recognize the benefits of more aggressive market programs with some carriers having only launched recently." Papageorgiou owns shares of Research In Motion, though his firm hasn't done investment banking for the company.
The revenue breakdown for the quarter was 56% for handhelds, 29% for service, 9% for software licenses and 6% for original equipment manufacturer, or OEM, radios and other revenue. Research In Motion said the total number of BlackBerry subscribers increased by 154,000 from the prior quarter to around 865,000 subscribers.
"RIM completed another successful quarter marked by strong performance and a multitude of BlackBerry launches around the world," said co-CEO Jim Balsillie. "We are particularly pleased to report higher-than-expected subscriber growth in the quarter, resulting from strong execution and momentum in our carrier channels."
Michael Abramsky of Canaccord Capital, who has a buy on the shares, points out that RIM guided for almost double the first-quarter consensus for next year. Based on its current momentum, Tuesday morning he raised his 2005 outlook to $2.67 in adjusted EPS.
To put that in perspective, the consensus estimate stood at a mere $1.04 per share heading into Monday's conference call.
To be sure, short-sellers have been voluble on the stock, arguing its
valuation has outrun its prospects. But Abramsky, whose firm has no investment banking relationship with RIM, argues, "They need to be given credit for execution at this point." Assuming the company manages $200 million in sales next quarter -- about the midpoint of the guidance issued after the close -- it will claim sales growth of a whopping 90% over last year's levels, he notes. Abramsky doesn't own any shares of Research In Motion.
As for guidance, for the fiscal fourth quarter now under way, RIM projected sales of $195 million to $210 million, with GAAP earnings per share of 30 cents to 40 cents. Pro forma EPS (excluding a charge for patent litigation) should be 45 cents to 55 cents a share. That's far above analysts' prior consensus estimates for $155.8 million and EPS of 22 cents.
In the following quarter -- the first of the company's fiscal year 2005 -- it expects sales in the range of $220 million to $240 million. Earnings should fall between 35 cents and 50 cents on a GAAP basis and 50 to 65 cents on an adjusted basis. Leading up to Monday's call, analysts had penciled in $158.4 million and 23 cents EPS for the first quarter, which ends in May.