If you haven’t been paying attention to BlackBerry Ltd (NASDAQ: BBRY) stock, you should take a look at it now. No matter how unattractive the company might seem at the moment, BlackBerry stock could still see some serious action in the near future.
Let me explain.
BlackBerry Stock: Short Covering Becoming More Difficult
Since it lost the smartphone battle to the mighty Apple Inc. (NASDAQ:AAPL), BlackBerry has been a short seller’s favorite. When a stock crashes from more than $230.00 to under 10 bucks, who doesn’t want a piece of the action?
The thing is that BlackBerry is a totally different company compared to what it was eight years ago. It has completely different priorities as well as new strategies in place. But markets didn’t really buy that. In fact, BlackBerry is still a short seller’s favorite.
By March 15, there were 74,696,676 BBRY shares sold short. To put this in perspective, note that the average daily volume was only around five million shares. (Source: “BlackBerry Limited Short Interest,” NASDAQ, last accessed March 28, 2016.)
So, days to cover have gotten pretty long. Days to cover represents the number of days it could take for all short sellers to cover their positions. Since entering 2016, days to cover on BlackBerry stock have more than doubled, from 6.356 to 14.800.
Short sellers would eventually need to cover their positions. Longer days to cover means short covering could become more difficult. If good news comes up and sentiment starts to change, the short squeeze in BlackBerry stock could be extremely pronounced.
But what could spark a short squeeze?
Well, as it turns out, BlackBerry is scheduled to report its quarterly earnings on April 1, 2016. The company will report financial results for the quarter ended February 29, which also happens to be the end of BlackBerry’s fiscal 2016. (Source: “Investor Events,” BlackBerry Ltd, last accessed March 28, 2016.)
Investors will be watching the company’s earnings closely. The reporting quarter is the first full quarter after the company’s first “Android” smartphone, the BlackBerry “Priv,” went on sale. The Priv was announced in September and released on November 6, 2015.
The product is expected to be the savior of BlackBerry’s dwindling hardware business. Due to the lack of popularity of its proprietary operating system (OS), “BlackBerry OS,” the company made the decision to move its latest phone to Alphabet’s Android OS. Other than having great apps like all Android smartphones, the Priv also has BlackBerry’s signature full QWERTY keyboard and robust security features, so BlackBerry fans will have a reason to stick around.
Sales figures of the BlackBerry Priv have not been released. However, the company’s CEO, John Chen, did say that sales of the Priv were “so far, so good” back in January. (Source: “BlackBerry Going All-in on Android Phones,” CNET, January 6, 2016.)
Another focus of the upcoming earnings report is BlackBerry’s software and services segment. In case you haven’t noticed, BlackBerry is much more than just hardware these days. In the previous fiscal quarter, the company’s non-GAAP software and services revenue skyrocketed 183% year-over-year to $162 million. (Source: “BlackBerry Reports 43% Year-over-year Organic Growth in Software License Revenue for the Fiscal 2016 Third Quarter,” BlackBerry Ltd, December 18, 2015.)
The Bottom Line on BBRY Stock
Note that by being in the software business, BlackBerry adds more stability to its financials. In the previous fiscal quarter, approximately 70% of its software revenue was recurring. Also, software services do not face the same product update cycle as hardware products.
BlackBerry also completed acquisitions of Good Technology and Athoc in the second half of 2015. Buying these companies would bolster BlackBerry’s competitiveness in the device management business. It will be interesting to see whether the company added more enterprise customers in the reporting quarter.
One thing is for sure: all eyes will be watching BlackBerry stock this Friday.