Event: Much maligned maker of Blackberry devices, Research in Motion (RIMM) shocked the market with earnings that exceeded expectations. The company reported adjusted net loss of 27 cents per share. Analysts were expecting a loss of 47 cents per share. Revenues also came in higher than expected. Sales for the quarter were $2.9 billion versus the estimate of $2.49 billion. The biggest news was that the company was able to add subscribers when most expected the company to lose customers. With the stock heavily shorted shares shot up over 20% in afterhours trading Thursday night. The stock settled this morning in the pre-market and looks to open up 15%.
Analysis: Death does not come easy. Research in Motion with its obituary written refuses to go down easy. While beating the numbers is one thing, the increase in net subscriptions has to have short sellers nervous. It was most certainly an unexpected result. Of course the company continues to face stiff competition from Apple and Google, but Research in Motion might yet survive. Or this all could be a mirage. We saw Groupon rally significantly recently when it announced it was entering the credit business and subsequently collapse when investors realized the news would do little to change the long term outcome. I’m inclined to believe the same with Research in Motion. This is not a fight worth fighting.
Action: Look to buy put options on Research in Motion mid-day. This rally is nice, but not likely to hold.
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