Valuing RIM: Stop Guessing And Look At The Phone

| About: BlackBerry Ltd. (BBRY)

Research in Motion, RIM, (RIMM) has seen many surprising trading days over the last couple of months and last Friday was certainly one of them. Trading over minus three percent in premarket resulting from an analyst downgrade and news about service outages of the BlackBerry services on the Middle East, European and African Vodafone network, the stock steadily rose over the whole trading day to end almost 14 percent higher at close. Monday is seeing a repetition of that feast with the stock trading around 10 percent higher. But more outstanding than the performance is the reasons that have been given for the turnaround: short covering and the publication of leaked pictures of the new BB10. The reason why this is so outstanding is that followers of RIM did not learn much from those pictures, so the stock really moved 25% over two days based on no new information.

The performance might be less surprising as it seems at first sight - investors might have started to realize the, at least in my view, most important aspect of an investment in RIM - the coolness factor of the BB10. Being long RIM since mid-2012, I have read dozens of articles in favor or against investments in the company. Arguments against are usually based on the fact that Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) have taken so much market share from RIM that it is just too late to catch up with a new phone. Conversely, authors who think RIM could be a value play point out that RIM is about to launch its next generation phone, the BB10, and that the company's pieces are probably worth more than its market capitalization. Graphs, numbers and tables are used to bring these points to the reader. However, the only thing that is really important to RIM is whether the BB10 will wow consumers. Like a venture capitalist in a company that is developing a new drug treatment, the one question that will matter is whether the company will soon produce a product that will sell.

In case of the BB10, the only way to forecast this is to have a very close look at the phone and ask ourselves whether the targeted consumers - business persons, lawyers, government employees, etc. - will be wowed by the new phone. And I believe they might just be.

BB10 is actually cool

Over the last few years RIM certainly has been feasting on one clear advantage over competitors - it provides the most secure phone infrastructure on the market - making it attractive for governments and companies that rely on security. However, the competition is catching up fast so I would argue the security aspect is not a strong argument for success anymore, at least not for longer than a few months or a year and much less in comparison to Apple than to Android phones.

Seeing the phone in action on previews and leaked pictures and videos on the internet, I have to admit that the BB10 is actually very cool: The phone is sleek and pretty and the online demonstrations show that the OS is as easy to handle as any other phone out there. In addition, BB10 offers unique features that will increase efficiency, including peak and flow as well as cool features like the timeshift camera.

BB10 could become the phone to have

There was recently an article in the New York Times about the embarrassment of people who still own a BlackBerry in the US as opposed to other smartphones that made me laugh. I completely understand why users of iPhones or Samsung phones might be happy with their products but please do not pretend to be cool, especially if it is an iPhone. My mother has an iPhone and so have most of her friends. I am sure Samsung phones are well-regarded among IT persons and teenagers but for the niche of business people that RIM targets I would argue that the BB10 has the potential to become again the phone to have. These persons want a phone that allows them to be efficiently connected and like a product that differentiates them from the masses. In addition, they can be guaranteed to be the center of attention when they show their colleagues or business partners how efficient features like flow and peak are to use applications and stay connected compared to the central button that other phones use.


On January 30 RIM will release the BB10 that will make or break the future of the company. I argue in this note that from what we have seen so far about the phone, it might well be a huge success and offer potential investors extraordinary returns. However, one also has to be clear that we have not seen and used the actual phone yet. In addition, RIM has a history of bad management decisions, which is why the company still trades around 90% below its all times high. Therefore, investing in RIM remains a high risk investment, especially after the recent rally that more than doubled the stock from its all time low reached in September. But if you have the guts to hold a stock that will remain very volatile over the next few months, you might be wowed by the returns you can get.

Disclosure: I am long RIMM, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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