There is no end to the ups and downs in Research in Motion (RIMM)'s stock price, and this time there is a surprising surge in the share price. The significantly positive impact on the stocks was witnessed immediately after an upgrade of RIM's rating by Goldman Sachs. The share price rose by 6.6% on Thursday (29 November) in the morning trade. The share price has been following an upward trend since then and it reached its peak at $12.15 on Thursday (6 December). The rating was upgraded due to the optimism regarding the success of BlackBerry10 which is set to be launched in January.
The current market price of RIM's stock is within the range of $11.62 and $12.18, and the target price for the stock is set at $18 which is very close to RIM's 52 week peak which stands at $18.77. Following the reiterated target price, the doubts regarding the company prospective financial performance cleared among the investors and RIM's stocks were back in the trade.
According to my analysis, there is a 30% chance of success for the new operating system set to be released by RIM. There is significant interest being shown by customers, there is high carrier support, and the early reviews are sufficiently positive for BlackBerry10. These factors can lead to high sales following the launch and this would give an instant surge to the overall revenue of the company.
Some of the analysts at Goldman Sachs also present that RIM will exceed expectations with the new launch. The current estimates for its prospective performance do not represent the improvement in margin to be brought by BB10 and channel inventory fill. According to the analysts at Goldman Sachs, over the next 4 quarters, RIM's revenue is expected to rise around 8%.
Although there is a widespread expectation of losses from RIM in the fiscal year 2014, the analysts at Goldman Sachs believe that the next financial period will be profitable for the company. The profit will be driven by the continuously rising demand for smartphones, fierce competition in the smartphone market, and increased sales due to high consumer anticipation for BB10.
Legal Dispute between RIM and Nokia
The upgrade from Goldman Sachs was the bright ray of light that came immediately after a worrisome time witnessed by RIM due to the patent dispute with Nokia (NOK). RIM had a licensing agreement with Nokia in 2003 allowing RIM to use "standards-essential" technologies for mobile devices. The dispute initiated when RIM started using WLAN technology in its devices without settling the royalties with Nokia. After arbitration, RIM faced defeat and Nokia was declared as the winner. This news sent Nokia's share price to a higher level, while making RIM's share price to fall. Although this dispute was settled in Sweden, Nokia intends to extend the territories of the dispute by initiating legal proceedings against RIM in the USA, Canada, and Britain. Since Nokia holds the position of a pioneer in mobile phone devices, it still holds a number of patents and it receives significant revenue from royalties. Nokia recently received $565 million from Apple (AAPL) as a settlement against patent infringement. Even though Apple is seen as an innovator of revolutionary products, it still needed to borrow certain technologies from the pioneers of the industry. Currently, Apple seems to be on the wrong path with no revolutionary products on the horizon.
Nokia's dispute with RIM was of such a potential that it could have resulted in the cessation of sales of BlackBerry devices; however, it was resolved in a timely and less disastrous manner. However, the significant surge in RIM's share price set off the negativity surrounding the company and it gave rise to positive anticipation by investors once again.
In my opinion, investors should buy RIM's shares as the market price of its shares is expected to continue to rise in the foreseeable future. As the BB10 launch date nears, the interest of stakeholders in the company will rise. This factor will keep the stock price at a high level. The value of RIM's stock after the launch will solely depend upon the success of BlackBerry 10. The environment surrounding the launch suggests that there is a good chance that BB10 will be a success, therefore there is a good chance that the market value of RIM's price will continue to surge.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.