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.
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