Appetite for Risk? Buy Some RIMM 25 comments
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I do not want to join the bandwagon of market enthusiasts promoting this company, but it is hard to ignore the potential profits it offers investors.
Research in Motion (RIMM), the maker of the famous Blackberry, has a lot going for it right now. Although the macro environment bears down on it, the loyalty it receives is deserved with its innovation. In my opinion, the Blackberry is an industry standard device. It is hard to see a professional these days without one, typing away emails, checking up on schedules, reading the latest headlines, and let's not forget, talking to their families. The all-in-one device offers great computing power, necessary in this information age. Looking into the future, where is Blackberry going to continue growing revenues for RIM?
The Present
The Company
Headquartered in Ontario, Canada, Research in Motion provides top of the line smart phone devices. The company manufacturers the renowned Blackberry devices, developing both the hardware and computing platform that has helped professionals stay constantly connected and productive. The company currently offers 15 different devices with service worldwide. Currently, RIM’s largest wireless service providers are Vodafone (VOD) (and Verizon (VZ)), AT&T (T), and T-Mobile, amongst many others. The wide international coverage makes RIM products attractive; the executives I work with all have one and love it.
The Numbers
- Price: $133.75
- EPS (ttm): $2.71
- P/E (ttm): 44.38x
- PEG (ttm): .43x
- P/FCF(ttm): 162.48x
- Beta: 2.42
(All data from Reuters Online)
The past 12 months have treated RIM very well, and the share price has seen a gain of over 66%. We can see that currently the company is enjoying the business it is receiving from corporations and professionals who leverage their devices to lead more productive lives. The stock has been very volatile, booking a Beta of 2.42, and has seen a 52 week range of $61.54 to $148.13. It is imperative to see the horizon and analyze how cash flows can be boosted while stabilizing the stock. I am sure you are aware of the new products RIM is planning that have made me so optimistic.
The Future
RIM has a wide selection of devices, and in the next month the new Blackberry Bold is set to release. The company has announced a two week delay on the device, but many analysts believe this is a minor thing and won’t affect earnings. The rumor mill also has revealed two other devices: the Thunder a touch screen phone that is set to rival the iPhone and the KickStart. The Thunder surfaced with online reports in May, and apparently should hit store in September. I’d rather not focus on speculation, but on what RIM has officially stated it will offer.
The Bold has debuted in other countries and touts improved performance as RIM continues to better its product offering. The Bold offers great potential to increase cash flows which can improve free cash flow if current expenditures are maintained. The PEG of .43x signals great growth ahead as well with the company moving to solidify itself as #1 in the smartphone market, which in turn should increase free cash flows.
I think that the Bold can more than double quarterly revenues YOY, keeping in mind that historically the company has seen such revenue growth. According to latest the earnings report, the average selling price of RIM’s devices is in the $300 ballpark, and estimating a conservative sales volume of roughly 1.1 million units, the Bold will bring in sizable revenues in addition to the other segments. Apple (AAPL) has sold over 1 million iPhone 3G units, and it only makes sense to me that despite consumers growing more hesitant to spend, the industry leader can surpass the iPhone’s mark.
Investors should recognize such potential and buy on any declines. The economic slowdown is a concern, but I would also like to provide my input on the competition present in the industry.
Blackberry v. iPhone
The big debate has been over which product will win over the majority. Will the Blackberry remain at the top? Or will the iPhone take over? It is obvious that investors want to find the winning side and ride it up as they pocket the gains. I think that RIM offers the better business solution, while Apple offers the better lifestyle solution. The Blackberry’s sleek yet still conservative look is more appropriate for business settings, as well as its tested and accepted OS. I do not want to insult the iPhone, it is beautiful in its own right, but I have also heard from fellow contributors about the possible security concerns corporations have. Keeping professionalism in mind, for the design, functionality, and security aspects of a device, Blackberry wins.
In addition, we must remember that corporations have spent a lot on rolling out the Blackberry to their ranks. It is not reasonable to expect them to change their communication devices over to the iPhone. Corporate software packages from Oracle (ORCL), AT&T, and Microsoft (MSFT) amongst many others are not only familiar but fairly stable with the Blackberry. I know for a fact that executives do not have the time for drastic changes such as a total conversion to the iPhone, especially in stressful operating environments such as this. We have visited the present and promising future of RIM, but what about the risks? After all, I only recommend buying in if you can tolerate a volatile equity in your portfolio.
Risks
RIM brings a high beta and a rather unattractive P/FCF multiple. Let's look at risks that are turning investors away.
- iPhone 3G breaching on market share
- Blackberry Bold being a bust
- Economic slowdown
- Corporate customers willing to transition to the iPhone
- Patent issues over products
- Lack of transparency
These are some of the problems that could really hurt RIM over the next year. I want to urge prudence when getting in as I remind you that the volatility is what brings the great gains, but also the force that will deal heavy losses. In order to protect oneself against any losses, put options could be purchased, but I recommend only the most savvy investors use such tools.
The bottom line, RIM is a great long term prospect, it offers quality products that have a solid footing in its market space. I suggest for the time being that only risk tolerant people buy in around $129 or below and be ready to take money off the table as it approaches $150.
Disclaimer: None.
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This article has 25 comments:
My question is: Can you call your product a smart phone if it can't do the real internet?
I would add that the mobile e-mail and browser and "cloud" market is about to see significant development as the emerging "Network Computers" begin to penetrate business. For some users this way of working will replace the RIMM approach.
We have yet to see what Apple will deliver to this new market segment and at what price point. It will be a huge blockbuster no doubt!
i think you need to check your numbers..
BB dont cost that much per user....recently we switched from BB to a motorla Q something using activeSync....and the reason was not cost, but better sync without having to hookup to laptop.
plus IT can manage the service on their own, no need to deal with Blackberry support.
so the author thinks that people will buy new bold....just because it came out, i am not sure its that simple....businesses dont spend on new handset unless its past the 2 year period and they are entitled for some discount.
plus there are hundreds of competition to BB these days using ActiveSync....
i think RIMM is going to do ok for another 2 quarters and after that all bets are off ( i will start a small short position if it crossed 145, and will keep adding as it goes up, the momentum may carry it all the way to 160 or higher....but that will be heaven for top sellers)
"Keeping professionalism in mind, for the design, functionality, and security aspects of a device, Blackberry wins." SORRY, NOT IN MY iBOOK!
Take note of the many blogs focusing on Apple's fuzzy math - some report the real P/E is only 12. I tend to agree... Apple blowing past 200 soon.
- but a good article on RIMM
HH
the main reason might just be that, during the belt tightning in many companies right now, IT departments are being accessed pretty hard. ALL Apple products need less IT support so it only makes sense that companies will start changing over to them.
and...MAC OS isn't prone to virus attacks, making them even less likely to need as much tech support or IT support.
and...Apple phone tech support is the best around meaning that a company can use this free support, while further reducing its own IT department.
as more business people experience the difference in ease of use and any 'fixes', the stocks in this category that will do the best will be those that sell parts to Apple. maybe RIM can figure out a way to do that, but otherwise, it doesn't look great for them.
I think RIMM did a great thing, and that they will continue to be a significant player in future. They will, however, slip into being a secondary player. If they are really smart, they will recognize this and figure out how they can excel in this role.
I do not believe I am simply being an Apple "fanboy" here. All you have to do is look at the news from WSJ that Apple has sold/distributed over 60 M applications from its App store. This in the first month of availability!!! Absolutely incredible!
Furthermore, you cannot ignore the fact that Apple HAS answered most of business's major issues with the iPhone. Sure it will take time for them to switch, and not all of them will, but eventually most will.
I hate to be a party pooper - but the handwriting is on the wall.
Did you see the increase of OS market share of Iphone last month?
I can't be absolutely affirmative to say Rimm is dead, but I can say that looks very bad fot them.
I see lots on 60 M apps downloaded - but nothing on 3 M iPhones. It is, of course, totally believable.
Apparently electronic arts made 2.1 MILLION from 'super monkeyball' in a month or two, which is a relatively simple program where you roll a ball around on the screen. Apple no doubt made at least that much from Texas Holdem' (from the reviews one of the best card games on any device and only $5 to purchase for all your iPods/iPhones).
Only able to be said by someone without any knowledge at all.
iPhone IS a handheld COMPUTER, not a phone, or an email device, that struggles to do more.
Get your facts straight.
Oh and here's a fact. A gentleman I know, who is 75 and retired after a very successful business life, recently made his first mobile call - on an iPhone. It prompted him to buy one, and then to say that he thought he had missed the computing revolution altogether; but with his cherished iPhone perhaps hasn't!
Beat that with an equivalent story about Blackberry.
hmmm. low PEG could mean the buy side knows sell side estimates are waaaaay too high -- CSFB has some decent research out on RIMM; I'd look at it.
Total market share numbers for computers include all the PCs used as cash registers, etc... That is pretty irrelevant. Look at numbers of computers sold to consumers and business users. Six months ago, PC users, zealots, and bloggers were denying that Apple was growing. Now, no one dare suggest otherwise, but they are scrambling to downplay of 50% or more sales growth. RIMM's not going to collapse overnight, but there is no growth left in it. Apple is taking over the PC market AND the smartphone market, and it actually costs MORE to support blackberry because they have to pay server license to RIM. Businesses don't like to waste money or send all their email through RIMs servers.
"In the lucrative >$1,000 PC segment, in the first quarter of 2008, Apple's retail market share was *66%*. This includes a 64% market share for laptops and a market share for desktops of 70%."
Woohoo!
Mac browser share is getting close to 20% up from prior estimates close to 10% or lower. At this pace (roughly doubling in 6 months) mac marketshare could surpass Microsoft marketshare in 18 months if the trend continues. It's pretty simple, but easy to ignore if you are a Microsoft or RIMM fanboy.
Current trends show Apple market cap should easily pass Microsoft's market cap in the next 12 months, too. I just put that in as a reality check for all of you who still think the iPhone is a 'toy'.
I know that RIMM's been great for me and I expect it to continue for a while.
This is why when they have a network outtage, your Blackberry is useless. The iPhone would be fine as long as the exchange server is working.
All those extra servers cost money.
Apple passed Google today in market cap. So, go ahead, call Mac users freaks if it makes you feel better... we admire your "appetite for risk," especially since RIMM is down $6 in the past three days, while Apple has gone up $10.
Apple is a computer company that makes computers (the iPhone is a computer). Rimm was a pager company that now makes a a phone with email. If Rimm can't turn the blackberry into a mobile computer than Rimm is toast.