Article / 23 November 2012 at 14:28 GMT

RIMM shares up 71 percent from BB10 in the past three months?

Equity Analyst

Is this a dead cat bounce? Or is it more?

RIMM (NASDAQ:RIMM) shares jumped 17 percent on Thursday on the Toronto Stock Exchange after some analysts and fund managers turned positive towards the company's prospects.

The company which has fallen 92 percent since its peak in 2007 has been the poster child of the mantra ‘innovate or die’. But now, analysts and investors have started to turn more bullish on the company.

One technology analyst, Peter Misek, believes that the Blackberry maker's new operating system BB10 has a 20-30 percent probability of success. The analyst believes that in this most upbeat scenario, RIMM can sell 43 million handsets in 2014 with margins of around 20 percent which could lead to about USD 4 of EPS. And with a valuation of 10x earnings could lead to a stock price of USD 40, quite a large jump from the USD 12 the stock is currently trading at.

Another analyst from a Canadian bank noted that "The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash, and seemingly readying a February 2013 BB10 global platform launch" which is all true, but the obvious risk is whether the company will be able to appeal to customers and capture market share from very powerful incumbents.

RIMM price performance

The smartphone OS market continues to be very crowded.  In the shorter term, it is questionable the market can support a multitude of OS due to the lack of developers. As Microsoft (NASDAQ:MSFT) and its Windows Phone have discovered is that new operating systems have to court app developers aggressively to convince them to produce worthwhile apps to make their OS ecosystem strong.  The limited resource in the mobile war is app developers and good apps are few and far between.

But while Windows Phone has been 'relatively successful' in creating an app ecosystem, its 100,000 app library is still easily dwarfed by iOS and Android's 700,000+ app ecosystem, and is still considered deficient. Research in Motion still has a long road to go even should the BB10 platform launch be successful.

There are still loyal Blackberry fans, but while Blackberry used to symbolize enterprise security, advances by Apple (NASDAQ:AAPL) and Android have now eradicated RIM’s enterprise competitive advantage. So now much of RIMM's success will be dependent on the difficult and the very dynamic consumer industry.

From an investment point of view, no matter what the terrible headlines are saying about the company, RIMM is still increasing its subscriber base which is currently at 80 million and is actually cashflow generative. The company also has over USD 2 billion in cash with no debt, net current assets of USD 3.7 bn against a market capitalization of USD6 bn.

In addition, it is relatively safe to say that due to the court battles between Apple and Android phone makers, the company's patents would most likely fetch a pretty penny if the company should unwind. So as long as the company can maintain its cash balance and its net current asset position than the stock should have a balance sheet based bottom at around USD 8 per share.

In the next few days, investors should expect a slew of upgrades of analysts' target prices given the large and quick increase in the stock price and positive news coming out of the company.

But while analysts are becoming more positive, some are still cautious and are waiting to pass judgment until analysts and consumers can actually get their hands on the new devices before they declare RIMM’s comeback.



Vasco de Oliveira Vasco de Oliveira
RIM has quite a negative momentum to counteract with the new iteration of its mobile OS. Both the company and its hardware have faced grim occurrences in the recent past, combined with the rising popularity of the Windows Phone OS, now aiming its canons at the enterprise market that has always been RIMs kingdom. It will take a careful analysis of the 'hype' that RIM can provoke, as well as sheer growth numbers (in which RIM is seriously lacking at the moment) to believe in a successful comeback.


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