After the market closed Tuesday, Research In Motion (RIMM) CEO Thorsten Heins provided an update on the company's business. He announced that the firm will likely post an operating loss for the first quarter, while analysts actually expected a profit of around $0.42 per share. We're sticking with our fair value estimate (click here for stock reports).
Heins mentioned lower volumes and competitive pricing as the main drivers behind the operating loss. He did mention that the company expects to increase its cash position by year-end and that the company experienced strong product launches in India and Latin America. From a value perspective, RIM's shares look incredibly cheap, but its products no longer resonate with customers to the same degree that they do at Apple (AAPL) or on Android-powered phones (GOOG). Valuation is only one consideration with our stock-selection methodology.
Additionally, the company announced that it has hired JP Morgan (JPM) and RBC (RY) to perform a strategic review of the firm and evaluate all business opportunities. We think this could lead to either a partnership with the likes of a hardware-maker like Samsung or possibly a software maker like Microsoft (MSFT). With Blackberry 10 not scheduled to roll out until the back half of 2012, we think the company will continue to struggle against its powerful competitors. We believe the company desperately needs a drastic change, or it risks heading to complete irrelevancy.
In the near-term, it might behoove them to release chat client Blackberry Messenger (known as BBM) as a paid app for other smartphone operating systems. We think BBM is one of the few advantages RIM still has over competitors (including iMessage), but this could quickly erode. Management puts the BBM user base at around 59 million, but we think users could eclipse the 100 million mark if it were released to other operating systems.
While RIM is not at all attractive from a fundamental basis, in our view, we don't think it's wise to bet against the stock, since it remains difficult to value the firm's intellectual property and there's a reasonable chance the firm receives a buyout offer at a premium. We still think Apple and Google are better companies for the mobile computing market at current levels, and we fear that RIM is very likely a value trap given its current fundamental and momentum indicators. For our Best Ideas portfolio, we only like firms that have both good value and good momentum characteristics as outlined in our white paper (click here to download it).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: AAPL is included in the portfolio of our Best Ideas Newsletter.