Research In Motion: Upside Exists Among Massive Pessimism

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 |  About: BlackBerry Ltd. (BBRY), Includes: AAPL, GOOG, MSFT
by: J Mintzmyer

After issuing their latest guidance, Research in Motion's (RIMM) stock fell to a 9-year low with market prices fluctuating in the low $7s. 1-yr price chart is shown below (Source: Google Finance).

Click to enlarge

Small Price Incorporates Worst Expectations

With a market price of $7.35, RIMM is trading at a total market cap of $3.85B. Taking away the net cash position of $2.2B, leaves a $1.65B price tag for the rest of the enterprise. All of RIMM's patents, existing infrastructure, and massive subscriber base could be theoretically bought at this price.

Theoretically, if RIMM CEO Thorsten Heins announced tomorrow that Research in Motion was abandoning BB10 completely and selling itself completely off, the stock would double, perhaps triple, instantly. If the stock failed to skyrocket in mere seconds after this theoretical scenario, a huge arbitrage opportunity would be available to any investor who could click the 'buy' button fast enough.

The Upside (Sell Off!)

Why so much upside potential? Research in Motion has a lot to offer potential buyers.

Cash (and eqs): is the most tangible at $2.2B.

Patents: Many investors were shocked last fall when RIMM's patents were speculated to be worth "only" around $2.5B; however, the true valuation will only be known following a selloff. Assuming a floor of $2B should be ultraconservative especially after hot-market signals including recent purchases by Google (NASDAQ:GOOG) (Motorola purchase-$12B) and Microsoft (NASDAQ:MSFT) (AOL purchase-$1.06B). $2B

Handset Business: A new purchaser could license the Blackberry-line towards the news Windows 8 (Microsoft already offered a partnership earlier this year and Microsoft has prior history with a search partnership). BB phones could also be licensed to run Android software. Floor value of $1B

Messenger Network: Former CEO, Jim Balsillie, wanted to license BBM to the Apple (NASDAQ:AAPL) iOS system and possibly to Google's Android software, but his reinvention plans were brushed aside. Rumors have also surfaced about a potential split-up, but RIMM has been plagued with rumors for the last 2 years or so. If this network was licensed out, I expect a minimum valuation of $1.5B

For the sake of remaining conservative, I will value the rest of RIMM's entire enterprise at $0. No future positive cash flows, nothing else.

In this worst-case outcome, RIMM is worth $6.7B or $12.79.

…But it's Not THAT Easy… Is it?

Many analysts are claiming that Research in Motion could burn through their cash pile next year through implementing the BB10 launch (recently delayed to Spring '13). RIMM has responded by searching for $1B in savings by chopping 5,000 jobs and cutting other programs. Worst case scenario, BB10 flops. RIMM finds themselves almost cashless next summer.

RIMM is still worth $4.5B, or $8.98. This is insanity.

Do they have a Chance?

Who cares? It doesn't matter anymore. The absolute worst case scenario can unfold (BB10 utter flop, $2.2B net cash destroyed) and buyers at today's prices will still make a small profit.

Utter destruction is already priced in. Bankruptcy? RIMM has zero debt.

Sentiments are Beyond Dismal

In the past two weeks on Seeking Alpha, I've yet to read one positive comment about Research in Motion. Most quotes are a variation of the Lynch wisdom "do not bottom feed" and "the trend is not your friend." I do not trade based purely upon sentiment, but this is an interesting touch. I'll take a chance like RIMM at $7.35 any day. Apple and Google have stolen the smartphone spotlight, but don't forget that even last-minute shareholders of debt-laden and disaster-prone Palm Inc made money off their investment.

Disclosure: I am long MSFT, RIMM.