A Research In Motion Reckoning

 | Jan 22, 2013 | 4:00 PM EST  | Comments
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I have been long Research In Motion (RIMM) since November, when I argued that even if the new BB10 model didn't sell, there'd be a huge run-up in the stock in anticipation of the phone's release date.

This simply went back to the Palm PRE playbook of 2009. In January of that year, the new phone was revealed at the Consumer Electronics Show, which caused an immediate stir in Palm's stock. It went from between $1 and $2 to $18 by the time the phone started shipping in June.

Why the spike? Believe me, there were just as many people saying the move was "silly" as there are now with RIMM. The reason for the speculative fervor, I believe, is if (and that's an Empire State Building-sized "if") the phones sell well at a decent price, it means huge profits for a small company that has no value in the handset business. That was the case with Palm in early '09 and it's the case even now at RIMM (and certainly a few months ago).

There has been a huge run-up in RIMM in the last few months. This morning it broke $17 and is closing in on a 52-week high. But the product launch is next Wednesday. Where does the stock trade from here?

I used to believe that the very moment the phone is held up on stage by CEO Thorsten Heins, the stock starts a big pullback that could last a month. My thinking was that an information vacuum would form and the bears will come out in force to argue that the launch is being met with a tepid response. Like Palm's final act, a wrenching stock decline leads to a take-under acquisition. Where I diverge from most people is that I believe the stock will bounce back and, a year from now, be judged as a successful product launch. I'm not saying a whole bunch of Galaxy and iPhone users will switch to BB10, but a whole bunch of the existing 80 million BlackBerry subscribers will upgrade. It's a modest expectation, yet it could propel the stock towards $40 by the end of the year -- if I'm right.

But I've reconsidered whether there's going to be a strong pullback after next Wednesday. Why? Because it's such a consensus view -- and consensus views are almost invariably wrong. Also, short interest in the stock has steadily risen over the last six months as the stock has doubled. Even today, as the stock jumped 10%, a number of people tweeted that they were about to enter a short position because the RIMM move was "overdone" and "not justified."

If the pullback doesn't come, panic among shorts could be severe.

There's also the chance of other news popping up, like carrier pre-orders and licensing deals for BB10 that could support the stock. Though undecided, I'm leaning towards sticking with my long position post-launch.

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