A group of psychologists conducted an experiment on a normal, healthy man. Let's call him John. On the day of the experiment, as soon as John got up in the morning, his wife suggested that he looked sick, even though there was nothing wrong with him. His kids, co-workers and friends that he came in contact with that day said the same thing. Of course, the scientists controlled who the subject came in contact with that day and coached them. John had started the day in good health but by bedtime he was really a little sick. Such is the power of constant bombardment of suggestions; direct and subliminal.
Now imagine if instead of casual suggestions by family members and friends; he was subjected to more forceful statements by doctors and other experts. Our subconscious mind plays a far more important role than our conscious mind.
Research in Motion (RIMM) has been facing major challenges for the last few years. RIMM botched up new product introductions, underestimated the importance of "apps", did a terrible marketing job, misguided Wall Street analysts and made a few other blunders.
Ms. Barbara Stymiest, the new Chairperson of the Board said she will be making a major overhaul, but so far nothing has been done. This is an example of another problem at RIMM: at times it moves too slowly. The two ex-CEOs -- Mr. Mike Lazaridis and Mr. Jim Balsillie -- pioneered a new industry and took their company from a start-up to $20 billion in annual sales in just a few years, a heroic achievement by any measure. However, they missed the seismic shifts in consumer tastes and preferences.
In my humble opinion, these two gentlemen instead of being paranoid (there is an excellent book, Only The Paranoid Survive, on this subject by the great visionary Andy Grove:), became over-confident, complacent and arrogant. I think RIMM's early successes resulted in hubris spreading to the top ranks at RIMM. They mocked and ridiculed Apple (NASDAQ:AAPL) while Apple and that great magician, the late Steve Jobs ate RIMM's lunch. They also missed the threat from Android. Today, Apple is almost 100 times more valuable than RIMM. I believe if these two gentlemen had been focused and grounded, it would have been RIMM, not Apple, on the conference call discussing what to do with $100 billion in cash. Who knows, one day it still might.
Despite their more recent shortcomings, these two gentlemen built a formidable company that has a very strong foundation, owns some of the best technologies in mobile communications and has a solid business. RIMM's customer base, international presence and partnerships with carriers all over the world are also very impressive. Oh, one more thing. RIMM also has the best security, a feature that will become even more important over time. However, if someone were to follow RIMM only in the US media; he would wrongly conclude that RIMM is a dead, or an almost dead, company. Nothing could be farther from the truth.
Despite losing market share in the US, RIMM has a strong, clean balance sheet and is cash-rich. RIMM generates a very healthy cash-flow and commands an important market position in international markets, especially in emerging markets where the growth in adoption of smart-phones will be much higher than in the United States.
RIMM also has an enviable base in large and mid-size corporations, as well as the public sector in North America. Subscribers that pay a recurring monthly subscription fee to RIMM for its BBM/BIS/BES services have been steadily increasing.
RIMM also owns patents that are very valuable. RIMM's proprietary secure network (deeply entrenched in most major companies' back-end systems) is envied by other providers. The BBM service provided by RIMM, using its own proprietary network, is popular all over the world. RIMM has, as of end of last quarter, 75 million subscribers that are expected to increase to 100 million in short order as the company expands in China, India, Indonesia and a number of other countries. This particular part of the business can also be viewed as a social network in a hardware box. Each subscriber has a unique pin that is associated with his or her phone. There may be possibilities to further leverage this unique asset.
RIMM has been caught in a vicious negative cycle. Only the negatives are highlighted in the media while just a passing reference, if any, is made to the positives. The negative articles in the media turn off consumers and the app developers. This has a negative influence on the businesses. For example, there are no CNN and New York Times apps for Blackberries and no Skype app on Playbook. This further turns off more consumers. The problem (among so many others) is that RIMM management does not have an effective media strategy. RIMM is probably the most trashed company today. Never before a company with such solid financials and profitable business has been so badly beaten up and declared almost bankrupt by so many in the US media.
Here are a couple of examples of the negative bias in the US media:
A $34 billion American company, Haliburton (NYSE:HAL) says it is switching to iPhone and this news is given wide coverage in the media. Haliburton is switching only 4,500 employees from a Blackberry phone to an iPhone over the "next two years". Is this really that big news? No. But it gets 24/7 coverage, with articles repeated over and over for days quoting this "news". Yes, it is evident that enterprise customers will switch from RIMM (who said RIMM will own 100% of the enterprise market forever!) but the Haliburton "story" is quoted day in and day out in the US media. Motley Fool sensationalized the above Haliburton story in an article without any of the real facts or data; just embellished perception trying to make something sound much larger than it is.
A major insurance company in Britain, Aviva, with $90 billion in annual revenues and 46,000 employees is not only enhancing and upgrading its Blackberry products but will be using the PlayBook. However, there was hardly any mention of this in the US media. The New York Times or The Wall Street Journal did not report on this story but jumped on the Haliburton story? Why there was hardly any coverage of RIMM being an innovative leader or RIMM launching its services in China?
"Reporting", at another website that covered the launch of RIMM services in China, gives more importance to some random checks by an analyst talking to sales associates in a few stores in the US than to the fact that RIMM's service is being launched by China Unicom (NYSE:CHU) in the biggest mobile market in the world. This "report" says that the analyst at MKM Partners expects the stock to "trade down toward $10″ this year, but that his $15 target is already fairly "conservative". What does that mean? The analyst further says that he lowered his estimates and now expects RIMM to earn $2.92 this year (implying a PE of little more than 3 for a debt free company with a book value of $23 at the end of 2013). The book value of RIMM goes up to $23 factoring in current book value plus last quarter's earnings plus lowered earnings estimated for this year. Articles questioning whether President Obama will switch from Blackberry are just malicious attempts to damage RIMM and Blackberry. Anyone can conjecture anything. In the last few weeks, on the eve of RIMM's fourth quarter earnings call, a number of analysts have predicted that RIMM will miss its own forecast and will have a bad quarter. So far, RIMM has not announced any warnings about its last quarter.
Even Forbes finally conceded that RIMM is a company that people love to hate. Another media outlet recently covered the introduction of integrated keyboard by RIMM for its Playbook. Please take a look at the comments below the article where it is evident that finally people are getting disgusted with all the vicious and unfair trashing of RIMM. The short sellers and other vested interests saw a chink in RIMM's armor and made a full frontal assault. They don't even hide the fact that they are being biased.
Why so many people want RIMM to fail is beyond me. If you do not like the product, do not buy it. If you think the stock is over-valued, short it or buy puts or don't do anything. But why this talk that "RIMM will go bankrupt" and "RIMM should close its door and distribute the cash" incessantly as if RIMM did something horrible to them? A report on Forbes is downright vicious towards RIMM. The author seems to have a personal vendetta against RIMM and uses his blog on the Forbes platform to trash RIMM. This same author has been writing trash about RIMM that makes you wonder his motivations. There are other "reporters", bloggers and "journalists" who constantly trash RIMM all over the media and seem dedicated to destroying RIMM.
I have the greatest admiration for Apple as a company and think highly of its products. Apple's management is one of the best. A company of that size will naturally have some problems. Did the bloggers at Barron's, Forbes, Minyanville, AllthingsD or anchors at CNBC and so many other "news" outlets report extensively about Apple's problems with the Chinese workers dying or being abused at factories making Apple products, or Apple being sued for "Siri" not living up to the representations Apple made when it sold the iPhone 4S? Why these outlets are relatively silent on privacy issues with iTunes and apps on Apple's devices? What if Blackberry had such privacy issues? These same people who are now subliminally encouraging US consumers to go buy that latest iPad (or do marketing for Apple) would have filled the media with so much hate against RIMM and asked for immediate demise of RIMM as they did when RIMM suffered an outage in 2011. I repeat; if there was a correction in Apple's stock price, I would buy Apple stock. Apple is a terrific company and is very well run. In fact, if I were RIMM's CEO, I would hire senior members of the marketing team and other executives at Apple (if they can be persuaded), no matter what the cost is.
Nobody believes that RIMM will keep the market share it enjoyed 5 years ago (the market has grown exponentially) or else RIMM would be a $500 stock. Apple's equity valuation is $550 billion while RIMM commands slightly over 1% of Apple's valuation. Is RIMM worth only 1% of what Apple is worth? If the market gives RIMM a valuation of just 6% of Apple's valuation, RIMM would be more than a $60 stock.
Now look at some of the investors who are putting new money in RIMM:
- Prem Watsa
- Lazlo Birinyi
- Leon Cooperman
- David Einhorn
- Mike Lazaridis (ex CEO who already owns more than 5% of the company)
Each of these investors has made more money than all the naysayers combined. By naysayers, I mean those who are writing articles all over the US media how RIMM is dying. Do these naysayers understand the strengths of RIMM and the probability that the new BB10 phones may be a competitive product? Or do they understand how RIMM will leverage other QNX powered devices to sell more phones and tablets?
Those who are determined to destroy RIMM are taking one good viable option (mobile communications platform) away from the consumers. RIMM's board and management should immediately embark on a strategy to stop this negative bias in the US media so when BB10 is released, RIMM's image has not been further tarnished by the media. RIMM should also allay all those fears of existential threats by arranging a multi-billion dollar credit line (arranged or supported by the Canadian government or financial institutions connected with RIMM). Every day that RIMM management and board ignore these vicious attacks, RIMM loses its brand value in the hearts and minds of consumers. Better yet RIMM should do the following; as I pointed out in a previous article:
- Current Shares O/S approx. = 500 million (assuming some buy-back in Q4).
- Tender offer for 200 million at $20 a share = $4 billion.
- Shorts disappear, bashers who are out to destroy RIMM will move to greener pastures when they see RIMM finally striking back. They have to cover in addition I will have a bid at $20 for probably more shares than available at $20. RIMM has created a floor now.
- Negative coverage is reduced or reversed now. Perception of reality is changed. RIMM starts reversing the damage done in the minds of retail and business customers (current and potential), app developers, employees that I want to hire and talented employees that I want to keep and other partners. Now everyone knows RIMM is here to stay so all that rubbish talk of existential threats is out the window.
- RIMM can easily post $3 billion in profits in a year or two, EPS $10 (only 300 million shares outstanding)
- If a PE of 10-12 is accorded to RIMM, stock price of RIMM will be at $100-120.
- Pay off debt of $4 billion with cash flow or a secondary at $100 or more.
- Grow RIM and be a significant player in the mobile space. There is enough room for all four of us (Apple, Android, Microsoft and RIMM). This will be a $500 billion market. (There are estimates that the mobile communications/computing industry will be a trillion dollar industry by 2015.)
RIMM should also come clean and either deny or confirm if there was any preliminary interest by potential suitors in the last 24 months. There are several reports that Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) were interested in buying RIMM in the summer of 2011 when RIMM was in the $30 range (with a premium, we could be looking at $45-$55 if these reports are true) but now the stock trades at $14.
I sense that an increasing number of people are realizing that what has happened to RIMM is not good in the long term for the mobile industry and for markets in general. RIMM is the only "small guy" in the mobile platform industry; the other three companies, Google (NASDAQ:GOOG), Apple and Microsoft are much bigger. RIMM's market cap is $7B; Google $200B; Microsoft $250B and Apple $550B.
The mobile industry, experts say, will be around $1 trillion in a few years. All four companies will play an important role as this industry innovates while consumers and businesses benefit from these new tools. I do not believe that the carriers, businesses and consumers would want RIM to wind down its platform and go away. Lazlo Birinyi said RIMM maybe the Apple of this decade. It's a "maybe", I agree. But even if RIMM were to be just one fifth of Apple; RIMM's valuation will increase to $100B or $200 per share. That's fine with me too.
Why there is so much hatred for RIMM? What do you think? I welcome your thoughts below.
Disclosure: I am long RIMM.