Research In Motion's (RIMM) most recent earnings report triggered an interesting reaction from analysts and the investment community in general, as the bulk of post-earnings discussion seemed to focus not on the numbers themselves, but on the fact that 80% of the quarter's new Blackberry subscriber growth came from the consumer. For the sake of perspective, RIMM added roughly 3.8M net new Blackberry subscribers in Q1, and ~3.04M of these new subscribers were consumers, as opposed to businesses. While there is some degree of obviousness to the fact that businesses are providing fewer cell phones to employees, our informal research into the consumer aspect of Blackberry growth indicates that RIMM is currently reaping the benefits of having happened to produce a "cool" product. While analysts have properly classified the recent consumer based growth as more fickle in nature than business based growth, we think that due to the nature of the newest wave of Blackberry subscribers, the growth may be more tenuous than most perceive.
It is fairly well documented that the Blackberry is the smart phone market's most dominant player: The most recent survey by ChangeWave credits Blackberry with 41% of the consumer market for smart phones. Additionally, the survey found that 11.2% of consumers plan to purchase a smart phone in the next 90 days, up from a figure of 6.8% when the survey began in June of 2005. So, we've established RIMM as the market share leader in a consumer market that has been steadily growing since 2005. With these facts established, there is a tendency to characterize the strong recent Blackberry consumer growth as the simple continuation of a trend that appears to have some degree of staying power. However, our anecdotal and unscientific investigation into the unscientific yet powerful concept of "cool" has led us to the conclusion that Blackberry's are in the midst of a sharp popularity increase amongst the teenage population - a segment of the population that does not adhere to brand loyalty.
Interestingly, the most common smart phone purchase denominator, at least amongst the teenage consumers we spoke with, is the ability to check social networking sites like Twitter, and particularly Facebook. The situation in Iran has called attention to the political and organizational powers of these sites. We would assert however, that Facebook and Twitter have also become an increasingly significant factor in teenagers' purchasing decisions, most specifically with regard to cell/smart phones. The email and browsing capabilities of smart phones provide teenagers with the perfect medium by which to communicate with friends, real time. As they are often obligated to participate in the same cell service provider as their parents, it isn't surprising that more teenagers would purchase the Blackberry, with its wider network availability, than the exclusively AT&T (NYSE:T) iPhone.
The two risks to future Blackberry growth, considered within the framework of the existing reality, are that Apple (NASDAQ:AAPL) manages to strike deals with additional wireless providers (think Verizon (NYSE:VZ)) or that a widely available "upstart" device (think Palm's latest) manages to gain traction with teenage consumers. With the teenage predisposition towards fads/trends, we would argue that a shift away from the Blackberry has the potential to occur quickly, in erratic fashion, and for intangible reasons (such as "cool"). In our opinion, this is not an ideal situation for a company like RIMM, whose shares trade on assumptions of healthy growth going forward.
Disclosure: No position in any of the companies mentioned.