As Research In Motion’s stock (RIMM) plunged the last repurchase program underwater, I speculated that RIMM would initiate another share repurchase program if the stock continued to go lower. It now seems that Research In Motion (RIMM) is indeed determined to prop up its stock with its hard-earned cash. During tonight’s earnings call, RIMM announced it is “doubling down” on its shares with another huge repurchase program even bigger than the last one. To emphasize the point, RIMM even placed the announcement in the headline of its press release: “Q1 Results and Share Repurchase Program Announcement“.
RIMM will purchase up to 31 million shares for cancellation over the next 12 months. Ten million of these shares will be purchased on the NASDAQ. At current prices (after-hours close), the NASDAQ portion alone represents about $560M. The Toronto Exchange portion is roughly $1.3B Canadian or $1.2B USD. I was expecting RIMM to announce another buyback because it was so aggressive in purchasing all the allotted shares of the last program well ahead of its one-year expiration. So, I will not doubt RIMM’s resolve as I did after the last announcement.
However, I will restate one of the many potential reasons RIMM is eager to spend money on its own stock:
“In RIMM’s case, stock-based compensation has increased over the years: $38.1M at the end of fiscal year ending Feb, 2009, up from $33.7M the prior year. Stock options are detailed in the annual report. The last report was for 2008. Options outstanding dropped from 9.1M to 7.3M from March, 2007 to March, 2008. The annual report also states ‘as of March 1, 2008, there was $133.6 million of unrecognized stock-based compensation expense related to unvested stock options which will be expensed over the vesting period, which, on a weighted-average basis, results in a period of approximately 2.5 years.’ That end-period just happens to coincide with the expiration of RIMM’s announced buyback. If this is more than just a huge coincidence, it at least shows that RIMM is highly motivated to execute this buyback…”
That expiration is now fast approaching (around September), so RIMM could very well gobble up all of its allocation in a few months time again. Note well that in the 2010 Annual Report, RIMM announced a legal settlement over its corporate governance practices involving earlier repurchase activity (see page 22). So, one could argue that given the closer scrutiny, the executives would not attempt to goose stock in order to increase the value of vesting options. Certainly given the great success RIMM had with its 2005 repurchase activity, executives are probably penciling in better returns with this cash invested in stock than in the business. Either way, I am now expecting aggressive execution of this buyback.
RIMM’s latest buyback also comes at a critical technical juncture for the stock. Assuming RIMM opens lower Friday morning, it will hover dangerously close to a major support line.
*Chart created using TeleChart:
I am not sure whether all this means RIMM is a great buy now, or a great short after the repurhcase activity ends. Pick your poison…
Be careful out there!
Full disclosure: no positions