Monday, November 24, 2014

* BlackBerry (BBRY) - What the Risk of Obsolescence Looks Like

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Do this analysis yourself with the click of mouse button: Capital Market Laboratories

BBRY is trading $10.41, up 1.7% with IV30™ down 3.9%. The Symbol Summary is included below.

Provided by Livevol

Disclosure: I am long (small) BBRY.

BBRY stock is up 67% in the last year.  The stock is also down 95% from its all-time highs.  I'm going to present seven charts which are breathtaking in that they illustrate quite clearly the risk of obsolescence and how a company can go from Wall St. darling to down 95%.

This is not a commentary on the future (until the option pricing at the very end), it's a commentary on the past.  That's all... an interesting bedtime story.

Revenue (TTM)
Well, this one is pretty easy... Revenue exploded, and then it imploded. And now we're here....

Provided by Capital Market Laboratories

Revenue (TTM) vs. Net Income Margin % (TTM)
Believe it or not, those revenue bars are the same as the ones in the chart above.  The bars just look "smooshed" b/c of the net income margin % red line chart.  In the trailing-twelve-months, BBRY has shown net income margin % of -124% (negative).

Provided by Capital Market Laboratories

Revenue, One-year Change vs Gross Profit, One-year Change
The blue bars show the annual change in revenue -- it's just a different way to see the decline than the prior two charts.  We can also see that gross profit, one-year change has dipped with revenue -- which is sort of obvious.

Provided by Capital Market Laboratories

Cash from Operations vs. Total Assets
Again, another way to look at the declines BBRY has suffered. This time we are looking at cash generation and the balance sheet (assets).  The two trend together (cash is an asset on the balance sheet).

Provided by Capital Market Laboratories

Research & Development per Dollar of Revenue
This is an interesting chart.  BBRY has curbed pending on R&D substantially as its asset base, cash base, revenue base and earnings have imploded.  But, if we look at R&D relative to the new reality of 80% smaller revenues, the firm has actually grown its investment in R&D in relative terms.

Provided by Capital Market Laboratories

Stock Repurchases over Total Assets (TTM)
Can't blame the company for this one.  If the firm was spending its ever so precious cash flow on stock buybacks that would just be insane.  I do note that the firm was buying stock at a huge rate in 2010 -- which was a wild "swing and miss" on management's side.

Provided by Capital Market Laboratories

And finally...
Stock Price vs. Revenue (TTM)
We can see the stock market correctly saw the future as the equity price collapsed ahead of the revenue collapse.

Check out the stock price in 2010 when management was buying back stock... Yikes, that was a huge mistake.  My goodness... so much cash spent poorly at a critical time.  This is the only chart that really points to an explicit (on purpose) decision by management to do "something" that was totally at odds with the reality of the world.

Provided by Capital Market Laboratories

Now we can look forward to BBRY earnings release on 12-19-2014 before the bell and the Options Tab.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$9, $12]

  • 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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