Research In Motion Goes All In Again

Research In Motion (RIMM) is clearly serious about putting its cash to work. On June 24th, RIMM announced it was doubling down on its recently completed stock repurchase program by adding another 31 million share allotment. In last week’s earnings report, RIMM indicated that it essentially went all in spending a whopping $1.53 billion on purchasing 28.4 million shares over the past quarter. This average purchase price of $53.87 means that RIMM is now underwater on about $2.7 billion of purchases over the past two programs. The last time RIMM went all in, the company spent $775M to purchase 12.3M shares at an average price of $63 per share RIMM and went on to spend the entire $1.2B authorized by the board. RIMM can still purchase up to 2.6 million shares until June, 2011 under the current repurchase program.

Last quarter’s repurchase activity added 2 cents of earnings per share. Headline results were very good with Q2 earnings of $1.46 per share 11 cents higher than analyst consensus and $4.62B in revenue, $150M over consensus expectations. One disappointment was Q2 net subscriber additions of 4.5M versus the company’s earlier guidance of 4.9-5.2M. RIMM announced Q3 earnings guidance far above the $1.39 consensus at $1.62-1.70 and Q3 revenues around $500M above the $4.83B consensus at a range of $5.30-5.55B (summary from briefing.com and data can be found in the company’s Q2 earnings report).

However, the great headline results only lifted the stock for a short while. The stock was up as much as 10% boost in after hours, but by Friday’s close, RIMM had lost all those gains and even traded in negative territory for a short while. The declines continued on Monday on more heavy volume, putting RIMM in danger of hitting fresh 52-week lows (see chart below).

After being surprised by the aggressiveness of the prior repurchase program, I speculated that RIMM would add another buyback program if shares went lower. While RIMM’s cash balance (cash and cash equivalents) remains strong at $1.15B, I am not expecting a third buyback after the current one ends. If RIMM’s shares go much lower from here, AND the company ends the current repurchase program well ahead of the June, 2011 expiration, I will then assume RIMM is getting ready to launch yet another buyback.

*Chart created using TeleChart:

Be careful out there!

Full disclosure: long RIMM put