Trade of the Day: BlackBerry Ltd (NASDAQ:BBRY)

Service Access Fees will eventually fall to zero

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Today, we’re opening a new bearish trade on BlackBerry Limited (BBRY). BBRY’s earnings announcement was better than expected in many respects. However, the hard facts remain as they were. Each quarter we hear the same arguments that “BBRY is a software company now” and, yet, that isn’t likely to move the profit numbers much in the short term.

Just like AOL’s membership fees, BBRY’s SAF (Service Access Fees) will fall to zero and that is where the profits are coming from right now. Gross margins in software look promising in the long term, but that means operating costs are going to have to come down — a lot. The bottom line is that the stock probably rallied on a short-squeeze into resistance at $8.25, but a fair value is much closer to $6.00. We expect investors to take profits off of the table and sell the stock lower in the short term.

Buy to open the BBRY November 8 Puts (BBRY161118P00008000).

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