BlackBerry’s Turnaround is Happening Right before Our Eyes

About 3 weeks ago, I wrote my first post on BlackBerry Ltd. (NASDAQ:BBRY) for Daily Option Alerts, which I titled “What Owning a Z10 Taught Me about Trading BBRY Option”. You can find the post here if you missed reading it during the first publication.

In that piece, I recommended three BBRY $10 strike price options with expiry set for December 2014, January 2015 and January 2016. I concluded that piece by saying “the most optimistic forecast for BlackBerry places the breakeven to profitable ways somewhere in 2016; yet, I believe that investor confidence will soon return and that the stock’s share price will rise once again”.

The reasons behind my optimism in that piece include the quality of hardware packed into the BB10 devices, the stability and security of the BB10 OS, and the company’s restructuring efforts targeted at creating a niche in the software and services industry. I also mentioned the company’s foray into the Internet of Things (IoT) project and the contagious optimism of the CEO.

By the way, BlackBerry is adesigner, manufacturer and marketer of wireless solutions for the worldwide mobile communications market with a market capitalization of $4.81B.

Investor Confidence in Back

Shares of BlackBerry surged 12% yesterday after the company reported positive, impressive and better-than-expected Q1 2015 results. BlackBerry shares are already surging higher today as the stock has gained 4.50% to 9.50 this morning around 11:08AM EDT as shown in the image below.

BlackBerry Chart

Highlights of the Better-Than-Expected Q1 2015 Results

  • GAAP net income was 4 cents per share, including some non-cash income
  • BlackBerry reported losses of $60 million or $0.11 losses per share, better than the consensus analysts’ estimate of a $0.26 loss
  • Operating expenses were reduced by 57% year-over-year and 13% sequentially
  • Adjusted gross margin increased from 43% to 48%
  • BlackBerry reported revenue from sale of about 1.6 million BlackBerry smartphones during the quarter, compared to 1.3 million phones in the previous
  • The company sold 2.6 million smartphones to end customers during the quarter

What is The Earnings Report Telling Us?

BlackBerry CEO, John Chen correctly answers this question by saying”our performance in fiscal Q1 demonstrates that we are firmly on track to achieve important milestones, including our financial objectives and delivering a strong product portfolio. Over the past six months, we have focused on improving efficiency in all aspects of our operations to drive cost reductions and margin improvement. Looking forward, we are focusing on our growth plan to enable our return to profitability.”

Another point that I picked from the earnings results and the earnings call transcript is that the company is working hard to become more than just a hardware player as it seeks a foothold in the software and services industry. This point is buttressed by the fact that 54% of revenues came in from the services segment while 39% of revenue came in from the hardware segment.

How to Trade BBRY Options

The three options with strike prices of $10 that I recommended 3 weeks ago are already near-the-money as shares of BlackBerry trade points away from $10. You may still want to jump on board the options, but the December $10 option is already up 37.21% and I plan to sell-to-close once the contract rises 50%. You should definitely consider the Jan 2015 10.000 call (BBRY150117C00010000).

— Daily Option Alerts

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