Street starting to show some more love for BlackBerry

RIM
By Chris Umiastowski on 29 Nov 2012 10:56 am EST
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Bay Street and Wall Street analysts are showing more optimism on RIM over the last 24 hours. Here's a quick recap of what's going on.

Byron Capital is a tiny firm most of you haven't heard of before, but their head of research is none other than the awesome Tom Astle - one of Canada's smartest tech analysts. He's also known for his casual writing style, which I'm a huge fan of. As discussed over at Cantechletter.com, he upped his target on RIM to $14 yesterday.

Astle is looking at fiscal 2015 estimates, which I'll remind everyone is pretty much the same as calendar 2014 (RIM's fiscal year ends February). He models RIM to sell 31 million BB10 handsets that year with an ASP of $450 and 20% gross margin, which implies a cost of $360 to make. Keep in mind this is a working model used to justify a $14 target. We all know (and he discusses) that margins could be higher or lower.

Most other analysts are assuming a $400ish ASP, and over the last 24 hours I've pinged several of my contacts to discuss what reality might look like on pricing. Most people I've spoken to seem to believe a higher price should be achievable for BlackBerry 10, which is a positive. So I think Astle's estimate looks pretty reasonable.

Goldman Sachs also upgraded the stock today. Their thesis? They bumped their target to $16 because they thinkconsensus estimates for next year's earnings are too low. Most analysts, they say, are underestimating ASP and gross margin improvement that comes along with BlackBerry 10. They believe BlackBerry 10 ASP will be over $400 (I should hope so). Why does this matter? Because when analyst estimates start rising, investors take notice. It usually leads to positive momentum for a stock as the crowds jump on board. It's short term thinking as usual - but that's the market rolls.

Not every analyst is in love with the stock. But more of them are warming up to it and being forced to re-evaluate fairly negative assumptions on the launch of BlackBerry 10.

Reader comments

Street starting to show some more love for BlackBerry

68 Comments

First post every!

Maybe a first first.

Really fascinating to watch this stock. I got in at around $19 and kept buying down to $7. I am in for the long haul so the extreme volatility of the stock does not bother me but rather captivates me. It feel like watching a microcosm of society through analysts eyes.

A lot through the down you can read comments from analysts some based on facts and extrapolation others veiled in some science even but truthfully just story telling.

When you here lines like "dead on arrival", "just like Palm" or mh favorite "we can see no scenario in which BB10 can be successful".

Emotional language designed to propagate out sound bite world. Not lies but statements to influence emotional ally not inform logically.

I wonder what their motives could be. Would make for a fascinating read.

BB10 The 10!

I'm still interested to hear Umi's reasoning for his worries on RIM's service revenue going forward.

He's mentioned it a few times over the past few weeks, and also mentioned that he had some sort of a meeting/conference call/whatever with some people a few weeks back that added to his concerns.

Very interested to read your thoughts on that. Maybe you have, but I might have missed it?

It does not sound like service revenue will disappear, maybe reduced. If margins are good on hardware then this is somewhat mitigated. Can't imagine Thor is going forward without a solid plan for long term profitability.

With 20% margins they have to accessorize and build the ecosystem with media and features. No way around it. They have to get better margins.

It does not sound like service revenue will disappear, maybe reduced. If margins are good on hardware then this is somewhat mitigated. Can't imagine Thor is going forward without a solid plan for long term profitability.

God bless Thorsten.

Some stars are aligning, good for them. This increase in stock price can allow them to borrow money if they have to, and decrease chances of takeover.

But there is a long road ahead, some key apps are missing, December quaterly report will be a bloodbath.

One thing that might help Rim succeed in the carrier/customer loop is the fact that Google might become a wireless carrier themselves. Apple will no doubt follow suit. Hence current carriers need something or competing platforms to fall back to. Enter RIM and Windows phone.....

I think carriers want RIM to succeed and will give them loads of exposure now.

Go Rim nonetheless

I don't think the Street will care about the last quarter results just prior to the launch of BB10. Everyone knows it will be crap, but the door is wide open for RIM in the new year!

I'm thinking with Skype in house now Microsoft looks set to challenge carrier hegemony more so than anyone else. You won't need that pesky voice part of your plan, just data....I could be way off though.

I agree: I don't think they're going anywhere, but reading Chris' posts, he has expressed concern for it several times.

It might have to do with service rev being squeezed, but I never got a sense as to why he was concerned.

Maybe the concern simply has to do with smaller margins. But I got a sense that he was more worried with their strategy and plan going forward.

I don't know exactly why the worry, but again, looking forward to see what he has to say.

The pressure on service revenues comes from the carriers being in a better bargaining position based on RIM's plight, allowing them to negotiate lower fees.

Yeah! For those folks ashamed to show their BlackBerry devices, a new time has come! The tables have turned!

What makes this guy so smart? Has he predicted something good in the past? Just trying to see how singling out one small firm/person is significant enough to merit its own article (goldman had article yesterday). Not hating on umi for this, I enjoyed the article

sell side analyst in industry for over 10 years.
p.eng
mba.
growth investor for the Globe and Mail.

it's a start lol

You're having a hard time, I see, noticing that I mentioned TWO analyst reports here, not one.  No worries, glad to help straighten that out.

Anyway, Tom is an analyst who has been in the industry for pretty much way longer than anyone else among the Canadian analysts, and longer than most American analysts.  He's one of the most highly respected guys in the industry.  Firm size is irrelevant.   

Prem Watsa said " 3 - 5 years ". For full recovery. Dude put up huge dough. Can't see him doing that without high degree of certainty.
#BB10Believe

Woah $450... Tell me that's what this phone is not going to cost me in store. Anything over $199 is going to be brutal. Is the carrier going to subsidize each phone $250 to get the price reasonable?

Do you actually know how much the iPhone 5 costs without subsidizes? In Canada, they start at $699. The carriers sell them for ~$180 with a three year plan. That makes them pay around $520 for each iPhone for the privilege of selling. It really isn't that high with the discounts they get, but you get the idea. For them to subsidize $250 for the BB10, it's a steal.

Maybe with that reduced subsidy the salespeople will be trained to say stupid things like "you don't want an iPhone, they are going bankrupt now that this new BlackBerry is out..."

rickkel,

last 30 days stock price:
RIM + 54%
apple - 2.5%

last 90 days stock price
RIM + 71%
apple - 12%

" Can your phone do this? " ;)

Apple market cap 554.41B
RIM market cap 6.05B

:( I'm not exactly Apple hater, but definitely not their fan

BINGO!!

Blackberry 10 will be the darling of carriers. It's no secret carriers are not thrilled in the least what they have to pay apple so apple can keep their margins over inflated.

Blackberry 10 makes good business sense for the carries and they are impressed with Blackberry 10 (as many others are waking up to ). I expect to see the carriers push Blackberry 10 hard as the rewards will be mutual to both.

your confusing ASP with RRP/MSRP

ASP is the net cost to the carrier/outlet for the device, the RRP is what you as a customer pay

Bluenose63, the carriers make that money back over the 2 or 3 years of the contract by charging so much monthly. Your monthly charge include enough to make up the subsidy plus. So $15 (or $20/month) X 36 months (or 24 months).

This is exactly why they like iPhones. They, not RIM, are the phone equivalent of crack. You get hooked with a cheap phone...and then you pay through the nose for years, both on the contract and the high data charges.

In Europe, where sim-only plans are common, the extent of the markup on contracts is obvious. It never ceases to amaze me that in the US the carriers get away with what seems obvious monopolistic behavior.

Yes it will be subsidized...as all phones are when you buy them on a contract. You don't think that an iPhone actually costs $199? The $450 is the price if you buy it off contract (which seems a bit low to me).

the $450 ASP isnt the shop price, its what the carrier would buy it at before their profit margin.

I know im mixing currencies here, but when the 9800 came out, a uk network i used to work at paid RIM £290 (the ASP) per device. The retail price though was £480 (the RRP/MSRP).

From my understanding the ASP is the price the carriers will pay to RIM, but likely not what you'll end up paying for it off contract, it'll be a bit higher. Just from digging around, I've seen estimates for the iP5 ASP at about $600-ish, lower than the actual consumer price, so probably safe to assume the consumer price on BB10 will be higher than the $450.

Today I am the proud owner of my first every stock buy and it was RIM stock.
Doing whatever I can do show my support.

Welcome to being an Investor. Now you can say with pride, that you have a vested interest in BB10 succeeding.

I've been buying every payday for about 6 months now. I feel like a kid at xmas each time.

It's a great feeling.

What is surprising is the resilience of the BlackBerry brand injected by its Crackberry addicts.

Total different attitude compared to Apple fans.

Probably that is the bet of some analysts.

If BB10 does become a huge success, then the service revenue will not be reduced because of increased customer base but also because RIM will be able to hold the line against carriers who are trying to drive their portion of the BIS fee down.
If it doesn't do really well, the carriers can threaten not to support it as much.
At this point in time, RIM needs the carriers to really push their product so they may have to give a little in that area to have the carriers push their product and improve their market share.

I can't see BB10 phones costing $360 to make/market/etc. They aren't using bleeding edge hardware that isn't in high supply.

I think the biggest lie I've read from the sell side analyst is that developers have little to no interest in BB10 and Blackberry. I really wonder where on earth are they getting that from.

I am also dumbfounded by the "bb10 is too late" comment. And they aren't talking about too late for RIM to survive as a company. They are saying bb10 is too late because apple and others already have their product out, so its too late. Give me a break.

What was annoying was that the author knew little about security and what happens when a company locks down your phone. They are restricting information flow to prevent leaks or loss of private information. A locked down iPhone will be equally restricted in capabilities and unlike a BB, you can't even type effectively. If you think your employer is going to let you surf the Net and post to Facebook while examining corporate email, boy your in for a surprise. BB balance, stage right.

Also, the production cost of the L-series seems to be a bit over inflated. The cost to make a iphone 5 is $207 and the cost of the iphone 4s was $188. How they assume a cost of $360 is beyond me. Are the chips being used cost that much more? I faithfully believe that Blackberry will win back lots of customers. I show and tell my friends about this phone and they are delighted by what I say. This right now is a lifetime buy.

You're missing a LOT of info here, InWithTheNew.  Those iPhone "costs" are estimates for the bill of materials.  There's a lot more that goes into the total cost of goods sold, on an accounting basis.

Also, COGS is very misleading for goods with very high marketing spend. For instance, in Europe at least almost nothing is spent on sales and marketing for small economy cars - people just buy them - whereas vast amounts are spent on promoting upmarket cars like BMW and Merc. The result is that a BMW may only cost 50% more to make than, say, a Ford Fiesta, but it sells at more than twice the price.
If the iPhone did not have that massive promotion, would it sell in such numbers? Probably not.

Actually, since it's made in unethical, inhumane working conditions in foxconn wearhouses, the actual cost to make an iPhone 4/4Sale/5 is $29, $39 and $49 (at retail $599, $699, $799) respectively.

Now if it was made in japan or north/america, it would be a more realistic price. Majority of Everything in china is really cheap because of slave labor.

I think analysts are trying to save their ass by understating the potential upside. Or maybe they genuinely don't realize the pent-up demand for BB 10. Once the phone is out, it'd out-sell most analyst's prediction and then the stock would skyrocket. I think we are looking at $60-$80 in 1 year.

I have invested every single penny I had in this stock. If it goes close to $60, I'd have made quarter of a million dollars! Then I can quit my full-time job and go back to school to do my PhD or something (I've always wanted to do PhD but can't support expenses on PhD stipend).

Also what went over everyone's head is that BBM now has over 60 Million active users in Asia alone, as per BlackBerry Jam Asia. Last quarter BBM had total of 80 million users worldwide, so I'm thinking, more so hoping that it means that RIMM has added subscribers this quarter.

My (a little unscientific) prediction of their 2013 sales is this:

Right now, RIM's share in phones being sold is 1.6%. It will easily double once BB 10 is released.

So, I think :
1. 25M of existing subscribes will upgrade in the first year.
+
2. They roughly sell 8 m phones per quarter anyway. This will double easily. So, that gives us 16m per quarter or 64m for the year.

Total of 89M phones sold (including upgrades to existing subscribes and new users altogether).

This is far more than most analysts are predicting. So, RIM share should easily skyrocket.

Have to jump in on this thread. I like the upgrades we are seeing from analysts!

Just wait until close to launch when the marketing kicks off - then the "surveys" the use to predict demand will show BB10 with a 70-80% chance of success instead of 20-30% chance.

With phones and other consumer identity devices it's all about repeat impressions. BB10 hasn't had enough repeat impressions on typical consumers yet because it is still 2 months from launch. Once they get repeat impressions (that's Boulben's job), the sales projections should go up.

My biggest concern here is Astle's $360 cost projection for the BB10. It seems high. If he is right, that is simply unsustainable for RIM. They cannot sell a low-end device if it costs them more to make BB10 than it did to make BB7. I know the $360 was a price for the high-end BB10, but if the high-end device costs more then the low-end device probably will, too. I hope that Astle is wrong about that number.

I still think ASP projections are coming in a little too low for the L-series and N-series. I think we could see around $500.

Keep the train going! -a1

Chris (Kevin or anyone else on Team CB) - did RIM post current subscriber stats at BB JAM Asia? They have at the previous events like this to show how BlackBerry is still growing but I haven't seen anything mentioned or a slide posted on this. If that is the case I would have to assume it's because the number has fallen below 80 million. I know it's all really about BB10 at this point but a news bite come earnings release on Dec 20th would have a short term negative media spin.

I might be an idiot ... but the Goldman Sachs report had a very important line. In fact the worst one in the whole report. They still state BB10 might fail 70%. Ouch. BUT, there's no mention of $5 plunge nor bankruptcy ... in that particular scenario - based on the hypothesis that the crowd could not adopt BB10 - the stock returns to $10.
This is a new mark of bottom value (sorry, I may miss use technical terms). The exact same mark I (we?) was almost praying for a few weeks ago.
IMHO, this is very, very important.

Forget the stock, I bought options. Have some in teh red, but some that I bought when the stock was at $7 or $8 are now up 600%. Pretty much cover my current losses and then some from my RIMM stock and options that are in the red.

Oh, and being a value investor, I see RIMM being worth $34+ if BB10 is even a moderate success. If it does better than I expect, I easily could see RIMM at $50+. If it is loved by consumers though, you're looking at record highs ($150+). And I don't think it will take 5 years like Prem Watsa does.

The stocks look really good now......all I have to say that if the bb 10 software don't freeze or froze whatever you wanna call it for these days, BB 10 is going not going to hit the market it will shake it so hard that every iphone in new york city gonna get the glass crack! Crackberry! Lol