RIMM Christmas Present

Research in Motion posted Q3 2007 Earnings tonight, Dec. 21, 2007 and it did not disappoint (except the shorts).

Learning from the LDK situation, which was the lesson of "listen to the market", RIMM was a nice chance to put that knowledge into play. RIMM had been drifting downwards toward the $100 mark since mid-November, but today it started to rise with no new information except that earnings were to be released after the closing bell.

From a sliding position for the past four weeks, to suddenly rising nearly 5% today... what gives? The only thing this points to is a positive earnings report, i.e. better than expected earnings. Analysts give us their estimates of what a company will report their earnings at. In most cases when a company beats those earnings, the response is usually positive with a large jump in stock price. Keep in mind that the difference between actual earnings and the expectation of the market is what causes the price jump. A better than expected earnings report can sometimes disappoint the market, leading to a slide in share price, when the earnings report didn't surprise the market enough. Bizarre, eh? This situation is often closely tied to a competitor that has recently released a similar surprising earnings report, but their difference in actual vs. expected earnings was greater. Talk about keeping up with the Joneses.

So the price of RIMM started to climb today leading up to the earnings report. To me this was the market saying: "RIMM is going to beat earnings". Where this information is coming from and how it is arriving at the market is not of my concern. One can guess that from a company of 6000 there is some information leaking out about how they're going to do. To think that a secret like earnings from a company as hot and as well known as RIMM was going to stay 100% under wraps... you gotta be kidding. Another interesting thing about human nature... we love secrets. And not keeping them, but sharing them. In the past two days we've seen this information played out in the markets with LDK and RIMM, one reporting less than stellar earnings, the other better than expected.

Now that we've listened to the market information with a near 5% rise in price just today, the big question was and still is: how high can it go? Checking the previous earnings release for Q2 2007, RIMM beat earnings by a bare cent, but over the course of the two following trading days their share price jumped 20%. That at least gives us some idea of the movement possible with this latest surprise EPS report.

A useful site for looking at historical and future EPS reports is Reuters. For capturing the latest news on a stock The Fly On the Wall does the trick.