What's next for Research In Motion stock?

RIM Stock Talk
By Chris Umiastowski on 16 Apr 2012 02:20 pm
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It's been a couple of weeks since RIM reported Q4 results. And in a couple more weeks, BlackBerry World 2012 will be upon us. The stock is still hovering around tangible book value, which stands at $12.42 per share. So despite all of the news and volatility, the stock price isn't much changed from a month ago.

Let's look at potential catalysts to move the stock over the next few months.

BlackBerry World is the obvious next source of news. Will RIM have anything interesting to announce on the BlackBerry 10 side? What about its relationship with Microsoft (announced last year)? How about those ultra-low-cost Curves we heard about on the last conference call?

Developers will be getting BB10 alpha hardware at the BlackBerry Jam event too. Those devices, as far as I understand, will not be given out under NDA, so they'll quickly find themselves being examined by media, analysts, investors and anyone who cares to watch a review video on YouTube. I'm pretty sure Kevin is already planning his assault on YouTube servers with the first video walk through.

So, depending on what people think about the BB10 alpha hardware, and depending on what RIM actually announces at BlackBerry World in Orlando, we could see some upside in the stock. But I'm slapping a big fat "maybe" on that comment, just to be clear.

Beyond BlackBerry World, we have to remember that RIM is in for a rough next couple of quarters at least. Even if BB10 hardware hits the market by the end of the summer, it can't affect the next two fiscal quarters. It may have a slight effect on Q3 (ends November). But at this point I'd guess we're talking about a small effect.

This means the sales decline on the current product lineup will cause plenty of pain to the financial statements for the next 3 quarters. I don't think it's a stretch to say that RIM could actually get to the point where the business is not making money prior to BB10 launching.

I know some readers will say, "Oh, RIM lost tons of money last quarter!". Yes, but that's on a GAAP basis (generally accepted accounting principles), and is a result of an inventory write off. Otherwise, RIM is still very profitable. I'm saying this could significantly change before BB10 launches.

If RIM actually shrinks to the point that its burning cash before the big launch, then Wall Street's reaction will entirely depend upon the potential success of BB10. The worst case scenario would be for RIM to be losing money while not having convinced the market of the potential for BB10. If that happens, tangible book value won't support the stock. It would probably slip under $10 at that point.

On the flip side, RIM may not shrink to the point of losing money over the next 3 quarters. They may stay profitable and convince the world that BB10 has a really strong opportunity to keep the company at least in the #3 position as a smartphone platform.

I should also point out that I expect another signifiant round of layoffs at RIM. They are 99% done putting any effort into BB7, and all hands are on deck for BB10 products and software. There are still plenty of unnecessary bodies at RIM as a result. The coming reductions in staff will save the company money. It will help them maintain profitability during this transition.

RIM delivered EPS (earnings per share) of about $0.80 last quarter, so that's $3.20 annualized. What if people start believing that the company has a sustainable opportunity to make even $2.00 EPS per year? The key to this argument is sustainability. They're making more profit than that now. But Wall Street has no confidence it will continue. If RIM can show a good enough story to make them believable as a sustainable competitor, even at a lower profit level, the stock will rise.

Here's why: Even at $2.00 per share in earnings, a sustainable company should trade north of 10x earnings. That would be $20. RIM won't get there without solid proof of sustainability though.

Another catalyst for RIM might be any non-traditional moves they make. For example, bringing BBM to other platforms and gaining market traction with ultra low cost service plans for first-time smartphone buyers.

Last week we saw Alastair Sharp from Reuters publish this interesting story about Jim Balsillie's plans to shift RIM's strategy.

My read of the Reuters story is that Jim wanted to start offering carriers a way to sell social messaging plans directly to consumers. These plans would work on non-RIM hardware. But naturally, these same plans could also be delivered via BlackBerry hardware.

To me, this makes perfect sense. I've said before that RIM should port BBM to other platforms. What Balsillie was allegedly pitching goes even further. And I have to admit, I love the idea. Sure, Jim lost a lot of credibility with investors over these last few years. But there is no denying this ... he is a brilliant strategist. RIM was never short on good strategic ideas. They fell short on execution and product quality (particularly software).

Consider, for a moment, that there are tons of cheap Android phones hitting the market. RIM is also launching some newer, cheaper Curves next month. So the entry-level smartphone buyer will have lots of choice. And plenty of them will choose Android.

RIM has its own global network and a BlackbBerry-specific APN (access point name), which means they can control what services are delivered to a device via their network. They could launch Facebook, Twitter and BBM clients for Android. Carriers could sell access to this for something cheap, like $5-7/month.

This plan could then exist at the ultra low end of the monthly price plan spectrum. So to be clear, this doesn't sound like something RIM is trying to convince people to pay extra for. It is intended to replace a more expensive, fully featured data plan.

A plan like this would offer great quality social networking via cellular and Wi-Fi. But customers would, presumably, only be able to use the rest of their apps (browser, app store purchases, etc) when connected to Wi-Fi.

You know what? I bet there's a good market for that. RIM used the term "on-boarding" when describing its strategy to sell low cost Curves along with cheap monthly service plans. There seems to be no debate that this makes sense for RIM. 


If so, why stop there? Why not sell these same services on Android phones? Catching people as they make their first transition from feature phone to smart phone is good business. RIM wants these people using BlackBerry services. So why not leverage the NOC and make it happen on non-RIM hardware too?

So there you have it. That's my take on what might cause RIM stock to move up or down over the next few quarters. I've lost money the last two times I've bought this stock since BlackBerry World last year. I haven't sold because the downside risk seems pretty limited to me here. There are interesting strategies for RIM to take advantage of. But let's not fool ourselves either. The stock could absolutely go down significantly from here. Any investors are responsible for weighting the odds on their own.

61 comments

_StephenBB81

Nicely written

I'm in for the rollercoaster ride!!

side note we are opposites on so many views!

kingbernie06511

Quality software
+
Quality hardware
+
Quality packaging
+
Quality plaftform
+
Innovation

= sales

= stock going up!

LoganSix

You forgot Quality Marketing.

kingbernie06511

i know, I was thinking about that later....

On the other hand and on a positive note, if you get all my above list right, marketing such a device shouldnt be too difficult....

xtremez

Another great write by Umiatowski!

ignites

you forgot your usual caution that you own shares in Apple Google and RIM or has that changed? ;).

Anyways, I dont think layoffs are the way to go. It'll send the employee morale and reputation right down the drain (what 'smart' people would want to work for a company that keeps laying off individuals). Instead they should work on realigning their bb 7 developers for bb 10 devices to enhance the bb 10 solution. If anything make them app developers.

q649

I think that some employees will do exactly that (make the switch from BBOS to QNX).

However, this isn't the time for RIM to not be focused 100% on their development team. If they don't have the skill set to work with QNX (or in the very near future), it's time to part ways with RIM.

I realize it may sound cold, but RIM isn't in a position to employ anyone who isn't 100% capable and committed. Unfortunately, sometimes loyalty isn't enough.

AfroZepher

I agree . . .If developing on RIM's platform is as easy as they say then why not save a couple of jobs and have the folks working on BB7 learn to work on BB 10? I'm sure some jobs would have to go to stay profitable but RIM future sustainability depends almost solely on their app catalog (also how they address keeping cost of handsets competitive given their issues with manufacturing cost.)

menaknow

Developers who only develop in Java will NOT learn BB10 (C++, WebWorks) overnight.

RIM needs that expertise now.

diegonei

When one's job becomes irrelevant to the company, that person is asked to leave. It's business.

The Java BB OS is dead. Unless you're working on something that will be moved on to the QNX BB OS, then you'd be dumb not to be looking for a job already.

They are not firing people at random, for phones sake...

Chris Umiastowski

You're right, forgot that.  I still own Apple and Google.  I mentioned owning RIM already in the article. 

soloworldelec

This is quite an impressive article. I'm loving all of the details, outcomes, and it is quite a particular article. The suspense is getting to me; I'm anxious to observe the reaction at Blackberry world 2012 and to Blackberry 10. I'm ready to see what RIM's next move will be.

tightlybound

It's got nowhere to go but down. Sorry, guys, but the BlackBerry 10 release (if it ever happens) won't be enough to save them. The handwriting is on the wall.

LoganSix

Apple is a three month low and trending downwards. Better bail on that one too.

kupfernigk

No, it is not a three month low but it fell over 4% today, 9% in 5 days. Why?

Because rumours of a cheap iPad selling at Playbook prices suggest that Apple has run out of ideas, and because there are rumors of anti-trust litigation.

I had more or less written off RIM a month ago, but good news (like Trend Micro and the US government's positive take on security) is out there.

Darlaten

If the rumors of an Ipad MINI come to fruition and at the lower price mark of $299, the Playbook as will other 7" inch tablets will all but be destroyed.

This potential move from Apple addresses two issues: namely, that the current Ipad is an expensive device when compared to other tablets out there and many consumers are unwilling to spend that type of money for just a tablet. Producing a cheaper priced tablet addresses this portion of the market. The second thing it addresses is that there are a portion of the market who do not want a large tablet - 7" tablets are fine for them. Apple may be finally recognizing this.

Now there will always be people who dont want an Apple product but anyone who thinks the Ipad Mini, if it is true, will not have a devastating effect on the compact tablet market is delusional.

For RIM's case, especially so. For the other component that RIM can not compete against is the app ecosystem that Apple brings to the table. When that is combined with a 7" tablet at a cheap price, how will the Playbook be able to compete?

Again, there will always be people who do not want an Apple product - I'm certainly in that case - but I not naieve to think that a 7" tablet from Apple will have no effect on the fragility of the Playbook's place in the market.

Kiddo2050

Think again my friend, when windows 8 comes out there will be so many cheap tablets Apple itself will be thinking about how it can maintain even 20 % of the tablet maket and that is why you see investor worry.

The Apple bubble is going to burst because there is no way its value can be justified based on its business model (single hardware producer). Hell even Samsung alone outsells the iPhone. And Apple will control the tablet market ... that's pure fiction.

Bill beats Steve again.. Sorry Steve.

Darlaten

According to Forrester Research, Apple already controls 73% of the tablet market with Android Tablet makers accounting for no more than 5%.

http://techcrunch.com/2012/03/05/forrester-no-android-tablet-has-more-th...

Windows 8 is certainly the "uncertain variable" in the current tablet situation. I dont doubt that Apple will take a hit when they become available. I wonder how much of a hit the Playbook will take as well?

ADozenEggs@aol.com

Somewhat convoluted post. There are plenty of cheap tablets on the market now, and despite the "iPad cost too much" statements, it's still outselling the rest of them and soing well.

I do not believe Apple will release a 7 inch tab. They don't need to. Let the others fight for what space they can. I don't believe Apple would destroy it's brand by confusing it.

As for Samsung. Apple only makes 1 phone. If Samsung only made 1 phone, do you honestly believe it would outsell the iPhone?

oddlyshaped

The fact that Apple might make a *different* product means they're out of ideas? That's ridiculous. RIM didn't even think of making a tablet until Apple announced the iPad, so while companies can run out of ideas, currently RIM would be the one lacking ideas. Not every new product can be REvolutionary, that is logically not sustainable, hasn't been done by any company and is not required by any means.

sk8er_tor

Always enjoy reading Chris' articles.

axllebeer

Another excellent article by Umiastowski. I always enjoy his views on RIM's financial situation.

On a side note, am I the only one copying and pasting his name to make dang sure I spell it correctly? :)

morganplus8

You should add to this great article the RIM gained 12% in Enterprise this past reported earnings period, simply amazing stuff there, and that the write down has a positive spin off in that they are likely to show sub increases because of it. I don't think the next 2 quarters are going to be as bad as everyone likes to think. The rush to 4S is over, many are re-thinking their purchase and long to be back in the BB fold. I was one of those in February of this year.

If the US market bottoms out at 5.0% this quarter, RIM stock can easily pass $ 20.00 on that news alone. The market discounts 6 months out and todays prices are reflecting the 2 quarters of bad reports that you talk about. The market is waiting to hear from RIM in 2 weeks and if they have anything positive to say, we have hit a triple bottom in the stock.

sk8er_tor

You seem too intelligent for us. Using words like "loosers." I've never heard of this word before.

G-bone

Shshshshshshsh!!
The Big People are talking!
Now, go tell your Mommy you've been playing with her smartphone again.

Rob Robertson

Great article Chris. Agree whole-heartedly with your take on "Balsillie's Last Stand"

scalemaster34

I agree that the next several quarters are going to be hard for RIM.

Many long term investors are going to want to see a full quarter of strong sales from BB10 devices, but with Android beating them on PRICE and Hardware Specs and Apple beating them on Marketing and Ecosystem... don't see where RIM is going to find room for expanding their sales. A new OS that doesn't do anything "NEW" is not really going to catch the average consumers interest.

Taxitai

Someone should just buy RIM already... apple and android (and soon microsoft) are destroying it.

kupfernigk

Microsoft? Seriously?
Now if you wrote that Samsung has been doing exceptionally well recently and has the long term potential to overtake Apple, I'd agree with that. Samsung has, after all, rather crushed Sony and some of its products like the Galaxy Note must have resulted in a lot of chair-throwing in both Redmond and Cupertino. But it's "Samsung" rather than "Android".

I would argue that the world needs three major phone platforms. A duopoly, both Californian, isn't good enough either for world trade or for supply security.

Kiddo2050

Windows 8 will ship more copies in its first year of existance than all iMac, Macbook Pros, and iPads currently in existance. So yes, microsoft, seriously. Projected 350 million copies in the first year.

Fr3lncr

I think he meant the Windows Phone and not the desktop side of things. MS being successful in one doesn't always translate to the other (i.e. Zune).

RIM still has a much larger market share than Windows Phone and MS isn't (as of yet) gaining on it).

Disclaimer - I actually like the look of Windows Phone... they just haven't released a device that I like enough to buy.

ChrisInSD

Nice analysis. But dude, you regular put the term "on-boarding" in quotation marks and have even referred to it as a RIM "invention" in the past. Kind of a pet peeve, but it's not a tech term, and it certainly isn't a RIM term. "On-boarding," a generic business term, refers to adding any new people to a process. This could be bringing new employees into an organization, or adding new customers to a product portfolio.

Chris Umiastowski

Guilty as charged.  I assumed Jim B invented the term on-boarding.  I've never heard it before.  It's so gramatically redundant, it just seemed like an invented word from him. 

Poodwahr

The reason your article lacks credibility is because of this sentence: "I haven't sold because the downside risk seems pretty limited to me here."

The folks who invested in Nortel a few years ago echoed those same words!!!

Navidb

Good article, Chris. The one potential catalyst for the stock that I would add is hiring a top-notch CMO. I am anxiously awaiting that news.

Also, I agree that Balsillie's strategy might make sense, but this is not the right time. RIM is rolling out a completely new generation of BlackBerrys. Even with QNX they are in a tough competitive spot. To make BB10 successful they need to differentiate themselves and NOC might be their best asset to do that. They need to give BB10 its best chance before they start putting their competitive advantage on other platforms.

I suspect if BB10 fails to gain traction, RIM will close down the hardware business and might just do what Balsillie was voting for.

djnick

Chris your attempts at pumping this stock is getting old. Just sell your positions and get out while you can. This stock is too risky for any retail investor and no analyst or firm are even remotely excited about anything rimm is doing right now.

19cbb

He's just getting paid to pump/hype $RIMM on a regular basis ... Do you think he owns $RIMM? Come on!

Chris Umiastowski

Yeah, you're so totally right.  Talking about how the stock could easily drop below $10 and how RIM might actually lose money over the next few quarters is a real pump-up scheme :)

You've obviously never read a bullish Wall Street research report before.  A lot of institutional investors would read what I wrote and call it a short sell recommendation in the near term.  I'm not kidding either.

19cbb

What's next for Research In Motion stock?

Free Fallin' [insert Tom Petty song]

BBNation

Just on bank news the stock moved crazy in last few minutes of trading. Hiring banks to review seems to be good idea, let's kill all those shorts..then see where it lands..

fanchettes

So I would like to buy a share of RIM stock, just one share. Either it'll end up a collector's item from a once great now irrelevant company, or a monument to the rebuilding of RIM. Who do i contact to buy a share of RIM stock?

rickkel

Open up an online brokerage account like E*Trade. You can even do it on your BlackBerry...

Perjade

Speculative articles like this are just like pies in the sky . Waste of time!

ciscobear

RIM needs to get BB10 and a competent set of phones on the market and seems that won't happen given PB OS2.0. I realize my PB now takes about three minutes to boot. Why why why?

BBM should never be licensed for other phones at least not now. If RIM can design a decent phone/s then they should look at that afterwards but not now.

Why aren't they capitalizing on OS5 users? All of those OS5 users should be sucked onto OS7 devices since last year...... :(

br14

"To me, this makes perfect sense. I've said before that RIM should port BBM to other platforms"

I've never understood why anyone thinks this is a good idea.

It's great for consumers, but then your local bank opening it's doors and handing out money is great for consumers - just not for the bank.

RIM cannot allow BBM on other platforms because it removes motivation to buy BlackBerry hardware - on which they still have decent margins. This is especially true in Asia and Latin America, where the BB has taken market share because of its messaging capabilities.

And if they charged for BBM to generate revenue, who is going to pay? I know I wouldn't if I had an iPhone. It makes no sense whatsover! (It only makes sense if you're a BlackBerry user that has friends on iPhone or Android - which is not helpful to RIM).

And it's little wonder Jim B has gone if that's the best he could come up with. He must have leaked the story in an effort to gain some credibility. Frankly the fact he claims it was his idea sounds like a good reason not to do it.

By the way, RIM has written off BB7 inventory less than six months after launch. This suggests to me that the inventory written off is for future give aways to maintain the subscriber base as the inevitable drift to BB10 begins.

And BB10 will effectively be launched at BB World. Which means developers will receive the SDK and other tools for development - whether or not we go to BB World. So we'll know very soon if BB10 devices are going to be able to save RIM.

Stock prices are largely based on perception. If RIM can generate buzz over the new platform, they may just recover some of the lost ground. I believe that's unlikely given the superior marketing ability of Google and Android.

Thorsten Heins claims he's recruiting a CMO. I suggest he gets a move on before it's too late.

Kiddo2050

No one is buying Blackberry Hardware(at least not in sufficient numbers to make a viable business). Consider your view to keep BBM within RIM if BB10 phones fail. Keeping it in hourse is pssing up opportunities to make money off of it.

Open BBM will attract users, but will anyone seriously switch from and iPhone to a Blackberry because of BBM? NO, so keeping BBM private adds little value to RIM and for many people their list of BBM contacts is shrinking so there is little stickyness in BBM for current Blackberry users anymore.

RIM is slowly killing BBM but not making it cross platform. Get it out there and learn how ot make money off it later just like Facebook, twitter etc.

br14

"No one is buying Blackberry Hardware"

Apart from 11 million people last quarter you mean. RIM made a paper loss last quarter in preparation for the launch of BB10.

If RIM has to open up BBM to operate its business, it will no longer have a business to operate. Opening up BBM would of course make BBM popular (assuming it was free of course) but it would signal the end of the company as a phone manufacturer. I don't think they're quite ready for that (especially with 70 million + subscribers).

Keeping BBM private keeps people tied to BlackBerry! RIM makes no money from BBM. Keeping customers loyal is its entire purpose from RIM's perspective.

As for people leaving to other platforms, it was ever so. But in Asian and Latin America RIM is replacing and expanding its subscribers.

Do you want Apple iMessage on the BlackBerry? Would you pay for it if it was available?

Sorry, but it is a crazy idea. I would not be surprised if many wanted to open up BBM so they could drop their BlackBerry and buy something else but still have BBM.

Then there's the rather obvious technical problem that BBM needs BIS and BES.

Facebooks uses ads and sells your personal data to make money. Is that really what you want from RIM?

tedd_jr

if RIM were to venture into the carrier service, they really need to improve BBM and push it as a "social media superapp". As a Blackberry user i love BBM but I'm not sure newer users would be sold on the legacy os when they could get a lowend android device. I'm assuming the super cheap curves will still run BBOS 6/7 and unless RIM can bridge the angrybirds/instagram/words with friends/draw something "app situation" users will continue to flock to android and the carrier kiosk carnies will continue to push android as the low cost solution. I hope they beef up BBM and offer a one stop social app that ties into facebook/twitter and other social medias as well as start to push social gaming with BBM integration. Maybe integrate newbay somehow and offer cloud services and a BBM facebook like storefront to share photos, thoughts and public feeds, completing the social circle. Otherwise their just charging 5-8 dollars for an IM client, a good IM client, but other companies are slowly making inroads into the Instant Messaging business.

Perjade

According to Bloomberg RIM has hired bankers to" weigh strategic options" ! The stock rose today 4 % because investors feel RIM is ready for a sale.

cgallaer

God I wish they would do a LBO/MBO and take the company private.

br14

That's my guess why they've contacted bankers. To take it private.

crackcroak

so chris, are you going to sell everything you own and use the proceeds to buy more RIMM? better get started now before everyone discovers what a hidden gem RIMM is (before the launch of bb10.) also a good time to average down on what you already own. i know you said the stock price can still go down, but if the company is really "going to do well" then it will recover and surpass whatever losses it will incur from here 'til the launch of bb10... right? based on your arguments, it's better than a 50/50 chance.

or should you know when to cut losses...

Jimcmf

Long live RIM.
Cant wait to grab me one of those BB10 ... fully loaded!

Pearl9100

I hate to be the guy who said, "I told you so." But...I did tell you so.

No point in off loading stocks at this point since you cannot lose that much more.

I've said it before, and I'll say it again: I don't think BB10 will save RIM. I would love to be proven wrong though.

abwan11

Get sammy or apple on board and that's it.

If samsung partnered it would bring credibility back to rim and give them the spot light to shine bb10 on the world. If apple showed any interest, and I mean just a little, the stock would shout off like I do when I see those chick's at the beach. The promise of a tomorrow would surely be there and the future would be exciting to see. But Microsoft worries me as a partner. Everything they do seems to turn to stone eventually. If Microsoft purchases rim that would be better for shareholders than just a stake but I can't see how it would work without killing at least part of what rim is today.

ghostzapper

When I read this article I wonder where's the beef? The analysis to support your argument that BBM going cross platform would be economically beneficial to RIM. As it stands it's an airy fairy argument especially for someone who was employed as a securities analyst.

tawroginski4

Your articles are deplorably dull and fabricated. Even do not want to read this waste.

thatplaybookguy

you do realize that if WE all bought a share each the value would go up, with that other people and companies would start buying rim shares and then we and rim become a success. for reals this would werk.

Geeoff

I've thought about this before.

It is a 'wait and see' for BB10,... BUT, THE STOCK MARKET IS FORWARD-LOOKING. So if BB10 seems good in May then investors will start buying the stock even in the midst of a couple weak quarters.

On the other hand, if BB10 bombs, then there are still many assets, like BBM or the propriety network, that could be used to generate cash.

So I've decided to go long RIMM. There is some downside risk. With a worst case scenario of 50% loss. But realistic cases involve limited downside risk (10-20%), with reasonable upside potential (20-30%). And the possibilities for BB10 or a buyout makes it interesting!

shuabert

"They are 99% done putting any effort into BB7, and all hands are on deck for BB10 products and software."

That's pretty disappointing for everyone who just bought a much-hyped BB7 phone last fall.