Tuesday, September 23, 2014

* BlackBerry (BBRY) - Risk of Obsolescence Through the Spectrum of Visual Data

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BBRY is trading $10.44, down 4.5% with IV30™ up 6.0%. The Symbol Summary is included below.

Provided by Livevol

This is an earnings preview for BBRY observing the stock, volatility and fundamental measures of the firm.  While we have all heard of the deteriorating business for BBRY because of a little product called the iPhone (aka the most successful technology product ever), I think it's much more instructive to see it.

First I'll lead with the Pièce de résistance. BBRY stock price vs revenue over the last four years.

Simply stated, the stock has collapsed as revenue has collapsed... Both are down ~80%.

Now onto the full story. Let's start with the five-year stock chart in isolation, below.

Provided by Yahoo! Finance

So BBRY was an $80 stock and the toast of the town, easily boasting the must have smart phone ever. Then... AAPL broke the world as BBRY knew it and since then BBRY stock has dropped to single digits for some time and now hovers in this purgatory of "wait and see."  We are waiting to see if the firm can produce either a handset (smart phone) that will compete even a little bit, or if they can monetize their extraordinarily popular BBM (BlackBerry Messenger) and parlay it into a company.

As of right now, bull or bear, you must know that BBRY is squarely in a position of defending its life. It is on the verge of obsolescence.

Those were words.  It's the visualizations that may "wow you."

Total Revenue (TTM)
What a gorgeous image.  We can see the cartoonish growth from a "nobody" to a firm with that topped out at over $20B in revenue in a year.  The firm is now down to $4.7B and shrinking remarkably fast.  But, while the chart is quite astonishing, this is still an enterprise with nearly $5B in sales -- there is hope... there is something...

Gross Margin %
While revenue have been collapsing, so has gross margin%.  The firm topped out at over 55% and was sitting over 44% when it peaked in revenue.  That's a crazy number, a crazy successful business for a hardware manufacturer.  Today, gross margin % has plummeted from the mid 50% range to negative.

Earnings from Continuing Operations %
If gross margin% is collapsing to negative, earnings from continuing operations are tautologically going to be negative... and they are.  The firm now loses more than $2 from every $1 it produces in revenue, reaching an all-time low of -122% margins.

Net Income (TTM) aka Earnings
Here it is in dollars.  BBRY peaked at $3.4B in earnings in a trailing-twelve-month period.  That number has now fallen to -$5.8B (negative).

Total Assets
As losses build, so assets drop.  The firm once carried over $14B of assets on its balance sheet and is now down to $6.8B.  One note here, which I will repeat, while the firm is collapsing, let's not lose sight of the fact that it does have nearly $7B in assets.  It's not dead yet.

Book Value per Share
BBRY book value has collapsed, obviously... But again, note here that while it looks awful, the book value is over $7 a share and the firm is trading at $10.50.  Here's where I repeat... It's not dead yet.

Research & Development over Operating Expense
BBRY has turned a corner in terms of R&D, which is to say, this is an upward trending measure.  The company went from spending ~ $0.07 per $1 of operating expense on R&D to now $0.13.  It's a shot...

So that's the fundamental make up of BBRY.  Now let's turn to the option market. Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

The implied volatility is the forward looking risk in the equity price as reflected by the option market (IV30™ looks forward exactly 30 calendar days).

In English, the red curve is the risk in future stock price movement.  BBRY vol is rising as the firm has earnings due out in a matter of days.  This is normal, expected and... a risk.

Finally, the Options Tab is included below.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$9.10, $11.90] by the end of trading on Oct. 17th.

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

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