Recently, few companies have been as big a victim of intense bull-bear debates as Research In Motion (BBRY). With the recent Q3 earnings report and the fluctuations in the BBRY stock price, the skirmishes continue, but with the numbers and the future prospects of BBRY in store, it is hard for me to fathom why there are so many bears out there.
Yesterday, BBRY released that the company shipped 6 million handsets and 370, 000 playbooks to secondary markets, and 1 million of those handsets were the new Blackberry Z10. Of course, in light of the Apple iPhone 5 debut of 5 million devices sold within the first 3 days or the Samsung Galaxy S3's 6 million units sold within a few weeks, the Z10 results are not that impressive. However, what is just as important as gross products sold is the gross margin, and BBRY has achieved a 40% gross profit margin this quarter. Compared with the 18% gross margin achieved by Samsung this quarter or Apple's (AAPL) margin of 38%, Research in Motion should have impressed everyone in this regard. This signifies that consumers who are loyal to the BBRY devices want it badly and are not only willing to leave their iPhone and Samsung contracts but pay big bucks for these coveted devices. It seems that analysts and investors did not expect BBRY to be able to generate such high profit margins as the consensus estimate was a $.35 loss per share, but BBRY posted surprise $.22 earnings per share. That is a whopping 160% increase above expectations, and the fact that the market did not see the significance to these numbers confounds me.
It has only been one week, with one service provider, AT&T (T), offering the new Z10 device. Verizon (V) and T-Mobile are following suit this week, so the 1 million number is bound to double and triple within the month. Furthermore, Sprint (S) is waiting for the release of the Q10 to sell the new devices. Once the providers all begin offering the new devices, the quantity of next generation Blackberry phones will be on par with the iPhone 5 and the Samsung Galaxy.
Furthermore, let's not forget that Blackberry has two more Aces in the Hole. First, the Q10 device with a physical QWERTY keyboard has yet to be released yet, and from the chatter on the streets, it appears that we can expect a May release date. Once this phone is released, Research in Motion will operate in a pseudo monopoly as the Q10 will be the only 4G, high caliber smartphone available with a physical keyboard. The fact that there is no other option for users who direly prefer physical buttons over a virtual keyboard gives BBRY even higher pricing leverage, resulting in even higher profit margins. With this coming in the foreground, I would be nervous as a short seller.
Secondly, Research in Motion has a card that most people are even thinking about right now, and this wild card has to do with the up and coming industry of mobile security. With the high availability and demand for data and the continuing threat of cyber-attacks, corporations, governments, and individuals alike are willing to invest financially for the security of sensitive information.
The technology revolution has boomed this past decade and the grand majority of the developed world is connected to the internet, especially in the realm of mobile devices. As an investor, the intelligent plan of action would be to follow this momentum and figure out where greater demand is needed with the mobile technology revolution. In my opinion, mobile security is the next big thing, and there is nobody better at this than Research in Motion. Let's not forget that in the past, Research in Motion was coveted by corporations and bureaucratic agencies because of the high security of its devices. There is already talk of BBRY licensing its hardware to mobile service providers, internet providers, and cloud data management.
If the company decided to license its security software and serve as a software for service provider in the realm of data security, its business would become independent of competition from the technology giants Google, Samsung, and Apple. With this highly probable prospect, Research in Motion has essentially guaranteed its existence as a successful technology company even if its OEM business fails (which I do not think will happen with the new Q10 coming soon). Thus, going long on BBRY may seem questionable right now, but I am confident that by the end of this year, investor sentiment will be strongly bullish.