RIM Volatility Rises as Hedge Funds See Apple, Google Threat
By Hugo Miller - Jun 23, 2010
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BlackBerry maker Research In Motion Ltd.’s stock has become twice as volatile as rivals’ around earnings announcements as investors look for evidence the company will keep pace with Apple Inc. and Google Inc.
RIM, which reports fiscal first-quarter profit tomorrow, rose or fell an average of 14 percent the day after earnings over the past eight quarters. That’s more than three times Apple’s average swing of 4.2 percent and above the 8.9 percent of Motorola Inc., which makes mobile phones that run on Google’s Android software.
RIM, which helped define the smartphone category a decade ago with mobile e-mail, has struggled to create a touchscreen device with the appeal of Apple’s iPhone or Motorola’s Droid for surfing the Web or watching video. While the Waterloo, Ontario- based company debuted a revamped Web browser in April that will begin appearing on BlackBerrys next quarter, concerns about its prospects lead to sharp stock moves, said Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto.
“There’s no doubt it’s highly volatile, there is a lot of hot money in RIM,” said Taylor, who oversees about C$12.7 billion ($12.5 billion) in assets including at least C$30 million worth of RIM shares. There is “a constant expectation that management is not up to the task of competing in that very competitive landscape.”
RIM’s share of the smartphone market fell to 19.4 percent of the global shipments last quarter, down from 20.9 percent a year ago, according to researcher IDC, though its share of the overall handset market is climbing. Apple claimed 16.1 percent of the smartphone market, up from 10.9 percent a year ago.
‘Do Something Dramatic’
Cougar Trading LLC, a New York-based hedge fund, has been actively trading RIM’s stock, Chief Executive Officer Buzzy Geduld said in an interview. RIM has moved in and out of his top 10 holdings over the past three quarters. The parent company of Cougar Trading held 20,000 shares as recently as last quarter, according to regulatory filings, and the firm has since sold all its shares, the CEO said.
“RIM has to do something dramatic in terms of a handset and more importantly they have to come out with some new technology,” said Geduld, who said he’s waiting to see new products before buying or selling more stock.
More than 100 hedge funds traded RIM shares in the first quarter, according to Bloomberg data based on regulatory filings. As of the end of March, RIM’s biggest shareholders included Edgewood Management LLC and Citadel Advisors LLC. Edgewood, a hedge fund based in New York, held 6.1 million RIM shares, while Chicago-based Citadel held 1.2 million shares.
Hedge Fund Sales
Jim Carrier, director of marketing at Edgewood, said the company doesn’t speak to the media about its trading. Devon Spurgeon, a Citadel spokeswoman, said the company doesn’t discuss its holdings.
At least 25 hedge funds sold all their RIM holdings in the first quarter, according to Bloomberg data. They include Artis Capital Management, a San Francisco firm that sold 1.03 million shares, and Alkeon Capital Management, a New York firm that sold 549,452 shares. Artis Chief Financial Officer Rob Riemer said the firm doesn’t comment on holdings; a call to Greg Jakubowsky, an executive with Alkeon, wasn’t immediately returned.
Movement in RIM shares after earnings has been in both directions. Over the past eight quarters, the stock has dropped five times, with the largest drop being 27 percent, and climbed three times, with one 21 percent rise.
Options traders are betting the shares will swing 11.5 percent on June 25, the day after RIM is scheduled to report earnings at 4 p.m. New York time, according to options market data compiled by Bloomberg. RIM forecast March 31 that fiscal first-quarter sales will be $4.25 billion to $4.45 billion, while earnings per share will be at least $1.31.
Goldman ‘Sell’
No one from RIM was available to comment, said Jamie Ernst, a spokeswoman for the company.
While 66 percent of analysts who cover RIM recommend buying the stock and 11 percent recommend selling it, 94 percent of the analysts tracking Apple rate the stock a “buy” and none have a “sell” rating.
Simona Jankowski, an analyst at Goldman, Sachs & Co., reiterated her “sell” rating on June 20. RIM’s “lack of product differentiation and an antiquated operating system place the company at a disadvantage in the fast-growing consumer segment,” Jankowski wrote.
Mike Abramsky, an analyst with RBC Capital Markets in Toronto, has a “top pick” rating on the stock because of the fast growth in the smartphone market and the opportunity for RIM, which gets most of its revenue from North America, to expand overseas.
“If RIM can hold its own it has a gigantic market ahead even with the presence of Android and Apple,” he said.
Fast-Growing Market
Smartphone sales have been growing about three times faster than the overall mobile phone market, according to the market- research firm Gartner Inc. Though RIM supporters believe the company will benefit from such growth, skeptics such as Jankowski say the company will lose out as software developers create more new applications for its Silicon Valley rivals.
RIM fell 17 cents to $58.67 at 4 p.m. yesterday on the Nasdaq Stock Market. The stock has declined 13 percent so far this year, while Apple has climbed 30 percent, to $273.85.
RIM has historically seen major swings after earnings, including a one-day gain of 51 percent in 2003 and a drop of 44 percent in 2000. Still, the stock’s volatility has climbed in the past two years from its average change over the past decade of 12 percent. In that time, Apple averaged swings of 6.7 percent and Motorola, 4.5 percent, the data shows.
Short-seller Magnet
RIM attracts more short-sellers than its peers. Investors taking short positions borrow a stock, expecting it to decline, then aim to repay the borrowed stock at a lower price and pocket the profit.
The number of short positions on RIM’s shares is equivalent to 3.1 percent of its shares outstanding, compared with 1.3 percent for Apple and 2 percent for Motorola, according to Bloomberg data.
“RIM is a stock you’re guaranteed to get a major move either way,” said Steven Li, an analyst at Raymond James Ltd. in Toronto, who rates RIM “market perform.” “So the hedge funds like to play the stock, especially in the U.S.”
To contact the reporter on this story: Hugo Miller in Toronto at
hugomiller@bloomberg.nethttp://www.bloomberg.com/news/2010-06-2 ... hreat.html
