Palm Stock Sale & Short Interest Trump Earnings (PALM)

Palm Inc. (NASDAQ: PALM) is out with earnings, although the key is going to be what the interpretation is over its Palm Pre sales.  The GAAP loss was huge, but the non-GAAP loss was only -$0.10 EPS.  The company said that non-GAAP adjusted revenues were $360.7 million.   Its non-GAAP adjusted gross profit was $100.6 million and non-GAAP Adjusted Gross Margin was 27.9 percent.  Thomson Reuters had a consensus reading of $-0.24 for non-GAAP EPS and $297.7 million in revenues.  This is huge on the surface, but PALM also announced a huge secondary offering.

This was a huge bump up in sequential revenues because this included the Palm Pre sales for part of the quarter.  Each of the last three quarters had seen revenues down under $100 million.  It shipped out 823,000 smartphone units in the quarter and the sell-through for the quarter was 810,000 units.

The biggest issue of all was not just about the loss and the revenues.  While you wanted to know about the Palm Pre sales and how that little new Palm Pixi phone (with the worst phone name EVER), the short interest was the top dog here.  We noted with our Unusual Suspects List last weekend that some 40% of the entire float was listed as being short.  That means that even not-so-good news could drive shares much higher if a panic-driven short covering game came into effect.

As far as the cash being raised, Palm is raising cash via a sale of 16 million shares of common stock.  With a 40% short interest and with a huge upside (or less-downside) surprise, this is going to act as a coin toss based upon how the calls come in tomorrow morning.  Goldman Sachs and J.P. Morgan are joint bookrunners of this offering and RBC Capital Markets is co-manager.  That implies for the conspiracy theorist traders that Palm just kept three analysts from coming out too strongly against it tomorrow.

Palm’s cash and cash equivalents was $211.8 million at the end of the quarter and cash used in operations for the first quarter of fiscal year 2010 was $45.1 million.

While it does not give guidance normally, the company said “continuing sales from products launched in the first half of its fiscal year” are expected to yield stronger operating performance with non-GAAP Adjusted Revenues for fiscal year 2010 of $1.6 to $1.8 billion. We have formal Thomson Reuters consensus estimates at $1.57 billion in revenues.

Palm closed down 1.5% at $14.44 today and the 52-week trading range was $1.14 to $16.80.  Shares were down marginally right after the report of earnings and the secondary, but shares are now trading up above $15.00.

JON C. OGG