RIM's Cash, RIM's Flow, RIM's Apps Grow

| About: BlackBerry Ltd. (BBRY)

Research In Motion (RIMM) has recovered from its recent low of $10.60 to close yesterday at $14.48. There are many reasons for the recent surge in the share price which we think will continue at least through the launch of the new BB10. We have written previous articles describing the alternative paths that RIMM has at its disposable to protect its share price and its shareholders. At last count, RIMM has just under $6 per share in cash and no structured debt.

The first option RIMM has is to sell itself to a strategic buyer. Our favorite suitors include Microsoft (NASDAQ:MSFT), Samsung (OTC:SSNLF), Facebook (NASDAQ:FB). We have outlined the reasons in the previous articles linked above. Yesterday's Facebook announcement centered on search and ignored mobile almost entirely. We think the potential combination of these two companies would work, but FB is probably too young in its evolution to make such an ambitious acquisition. Microsoft, on the other hand, could do this as a cash transaction in the blink of an eye.

Samsung tipped its hand at CES when they announced their pursuit of the enterprise market. For numerous reasons, Samsung knows all too well they can't do that under the Samsung brand and would need the credibility that RIMM brings to effectuate their enterprise desire. Whatever plays out in this option for RIMM, they now have a better share price upon which they can extract a premium for a possible acquisition price. Let's summarize this as a backstop option for RIMM.

Several recent developments seem to be breaking down the barriers to RIMM's resurrection. First, there is continued positive feedback from the tech/media community on the Dev Alpha BB10 devices being tested. TechRadar reports RIMM as saying that the BB10 "FLOWS" in this excerpt:

The whole Flow concept really comes to life when you swipe up from the bottom of the screen - this minimises the current app/screen you're viewing and shows new notifications counts down the left hand side, including new emails, BBMs, texts and social media messages.

Here is one from UK journalist Andrew Orlowski from a Forbes November '12 article that we think sums up RIMM's opportunity very well:

Once you've got used to it, and that the Hub is the home screen, BB10 is by some distance the most brutally efficient multitouch interface I have used so far. It makes the others look like hard work.

Yes, the odds are stacked against RIM - and when it comes to the as-yet unseen hardware, it needs to pull some crackers out of the barrel. But phones sell on the user interface, and this is very good indeed.

It certainly looks as if RIMM is "pulling some crackers out of the barrel". In November '12, RIMM announced a relationship with Appcelerator to speed up its app development efforts. Last weekend, RIMM held a BlackBerry Jam Event called an app Port-A-Thon where they invited app developers to "port" or modify apps to operate on the new QNX/HTML5 BB10 platform. In 37.5 hours they "ported" 15,000 apps. RIMM's Shelby Hanson tweeted: "Yes, it is true! 15k apps in 37.5 hours and one more chance this wknd!"

At that rate, it would not take much to "port" every (700,000) Android/IOS app to BB10 platform. Alternatively, emulating Android and IOS as we have written makes the perceived "moat" around the app universe by Apple (NASDAQ:AAPL) and Google's (NASDAQ:GOOG) Android look as if it is being filled with concrete.

China Mobile (NYSE:CHL) is the largest mobile phone operator in the world. Nokia (NYSE:NOK) signed a contract with China Mobile which has helped its sales exceed expectations. RIMM has an existing deal with China Mobile on its BlackBerry Bold 9788 model and is presumably pursuing extending it to the BB10 phone as well. This development would dramatically increase BB10's potential sales prospects.

All of these positive developments are leading investors and analysts to rethink RIMM's value. An October '12 article at Crackberry.com highlights the thinking by a long time Scotia Capital analyst covering RIMM, Gus Papageourgiou:

In his upside model, Papageourgiou shows how RIM's phone shipments could go from his published estimate of 41.9 million to 56.6 million. Remember that RIM sold about 10 million units last quarter (they shipped only 7.8 million but I'm talking about end-customer purchases here). That's a rate of 40 million per year now. So growing to 56.6 million isn't really anything more than moderate success. But Scotia calculates that this could bring earnings per share to $4.39 versus their official $0.15 estimate.

The article, written by Chris Umiastowski, goes on to extrapolate what would happen to RIMM's stock if the $4.39 earnings were achieved:

So I'll put my thoughts out there. Let me pre-frame this by saying it's a big IF ... but if RIM can actually deliver the $4.39 per share earnings in Fiscal 2014 (calendar 2013), then the stock is going to $40 again. Wouldn't that be a satisfying turnaround?

We believe this type of potential scenario investors are calculating will continue to move RIMM shares higher. In addition, a recent Wall Street Journal article reports Apple has been reducing its iPhone parts orders which foreshadows weakening sales to iPhone competitors.

We end with 2 "short story long" thoughts which could prove to be further catalysts for RIMM shares. First, RIMM's short interest continues to increase. The latest report from the end of December '12 shows 137 million shares short. This was an increase from 119 million shares from mid-December. The short sellers continue to sell into the rally to "average up" their cost basis. If the positive prospects for BB10 come to pass, these positions presumably will be closed. This can provide a further boost to RIMM shares as a "melt up" occurs when short sellers cover.

Finally, we have an anecdotal hypothesis which builds on the relatively affluent BlackBerry user base RIMM enjoys from its leadership position in the enterprise market. This user base is more likely than not in the "if I like the product, I should buy the stock" frame of mind. If, for instance, 500,000 BB10 users liked it and bought 1000 shares of RIMM, that would represent RIMM's entire float of 500 million shares. That is a frightening thought for a short seller.

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