A reminder of our blog earlier this week as BBRY trades up 10% pre market on being taken private news

Is it time to go blackberry picking?

“Blackberrys are in season right now as I can happily testify having eaten them in cakes, in  jam,  and own their own with ice cream over the last week. They are tricky to pick and can leave  a nasty stain if you don’t watch what you are doing, but they taste delicious if you pick them just at the right time.” 

The previous paragraph is a timely metaphor for a different sort of Blackberry picking, namely   timing an entry on the long side in the shares of the Canadian smartphone maker of the same name (BBRY Nasdaq). 

The Smartphone maker is best known for its near ubiquitous email and messaging services and which became a mainstay of business life throughout the developed world. Such was the penetration of the Canadian company’s devices into corporate culture that terms such as  “crackberry  addict”  entered the lexicon and always on email and messaging became part of daily life for millions of workers (for better or worse) and who could often work remotely and/or in flexible patterns as a result. However the world rarely stands still for long and even less so as far as technology is concerned, particularly when your users are acquiring personal phones (which they use alongside their work devices ) that are desirable status symbols stuffed with useful functionality that made Blackberry products look and feel old fashioned. 

The emergence of the Android operating system as a global standard accompanied by the almost fanatical reverence for all things Apple amongst consumers sowed the seed of Blackberrys demise. Not that the group was above shooting itself in the foot for instance in its persistence with its proprietary operating systems (both Palm and Nokia learnt this lesson the hard way and were laid low by their reluctance to adopt industry standards), or the frankly laughable playbook tablet that didn’t function without being tethered to a blackberry phone!

Blackberry’s share price stood at a little over US$131 in early 2008, by the beginning of 2013 it had slumped to just US$13 – defeat snatched from the jaws of victory  I am sure you will agree and proving that a market leading position must be both earned and maintained.

Blackberry’s share price would continue to weaken across the opening half of 2013, despite  occasional rallies higher towards US$18 and the stock finished July at US$8.84 with a market cap of less than US$5 billion – barely above its $3bn cash balance.

However, there are some signs of life in the group’s shares. Blackberry installed a new management team led by CEO Thorsten Heins in 2011 and who had previously served as the COO  of Blackberry and the CTO of Siemens Communications prior to that. Mr Heins has overseen the introduction of  a new generation of Blackberry devices including their first full  touchscreen device (the Z10), and whilst  these devices have not set the world on fire in terms of sales, they do show that the company is capable  of innovation.

Blackberry Z10

Blackberry has also recently announced that it has been developing apps for its key BBM messaging service which will allow it to run on android and IOS devices and which might be the first stage of a multi platform offering that would allow it to compete at an enterprise level in the age of the “bring your own device workplace” providing organisations with a common platform across myriad phones and tablets – something that Android, Apple and Windows 8 can’t currently offer. 

However, it was the emergence on Tuesday of pictures which purported to show the very newest of blackberry products that got investors juices flowing, so to speak. The pictures showed slick looking touch screen devices, one with a 5 inch OLED display, whilst another device appeared to offer a touch screen combined with Blackberrys signature “qwerty” keyboard in a slider configuration. Blackberrys stock rose by some 7.4% on the day, on turnover of 33.7 million shares some 50% higher than its usual daily average of around 22 million shares. 

It could well be that we are starting to see a short squeeze develop in Blackberry’s stock in which a rush to cover drives the share price higher and becomes self feeding. The short interest in Blackberry’s stock stood at 160,837,750 shares according to figures compiled by the NASDAQ exchange. That represents more than a week’s worth of average turnover. True, the total figure has declined since it peaked above 184 million shares at the end of June, but it is also the case that average volume in Blackberry has reduced dramatically from 96 million shares per day  at the end of January to around a quarter of that figure in recent weeks. What that means in effect is that the stock is a lot less liquid now than it was seven month ago.  The chart below shows the ‘days to cover’ the outstanding short interest in Blackberry. As we can see, that is starting to trend higher once more.

Blackberry stock plummeted by around 27%  at the end of June as it published its Q1 numbers. Analysts were concerned by slow sales and a fast cash burn, prompting five concurrent broker downgrades on the name. That left a yawning gap between US$15.04 and the subsequent day’s high of US $10.98 – one which remains to be filled. The stock moved back above its 20 Day EMA line yesterday at US$9.50 and if it should move to the lower edge of the end June gap then it will also encounter its 50 day ema line which is descending and currently found around  US$11.00. Filling the gap is a lot to ask, but if the new phones continue to fire the markets imagination then there a definite  chance that the stock will be squeezed as non committed or loose  short sellers seek to cover their positions. This is one to watch very closely on the upside from here.

Clear disclosure – Titan Investment Partners holds a long position in Blackberry in its Global Macro Fund