RIMM: The Cheapest Growth Stock?

| About: BlackBerry Ltd. (BBRY)

Research In Motion (RIMM), the manufacturer of the (Bl/Cr)ackBerry, turned in some exemplary numbers. For the three months ended Aug 30, 2008 (RIM’s Q2, 2009), revenue was $2.58 billion, up 15% from $2.24 billion in the previous quarter and up 88% from $1.37 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 82% for devices, 13% for service, 3% for software and 2% for other revenue.  

During the quarter, RIM shipped approximately 6.1 million devices, and grew their subscriber base by 2.6 Million.  Fact: Blackberries are a status symbol in Asia [as is the iPhone] - these accounts rarely contribute to an increase in the subscriber base - for, - all that these devices need to do - is to look pretty, and be compatible with the local GSM networks [and ocassionally work with WiFi.]

Awesome numbers. In fact, for fiscal 2009 [ending Feb 2009], top-line growth of 80% and a growth of 70% in EPS is at the low end of what the company thinks they can churn out [awesome].  For fiscal 2010 [March 2009 to Feb 2010], I think that a growth in revenues of 40% yoy and EPS of 35% yoy [assuming slightly lower gross margins moving forward] are for sure numbers that RIMM can deliver on.

Even more important, the subscriber base grew by 2.6 Million to 19 Million. These are the corporate accounts that are addicted to BlackBerry’s secure e-mail that is supported by the customer’s respective corporate IT department(s). Net income for the quarter was $495.5 million, or $0.86 per share fully diluted, compared with net income of $482.5 million, or $0.84 per share fully diluted, in the prior quarter and net income of $287.7 million, or $0.50 per share diluted, in the same quarter last year.  That is an increase of 68% y-o-y.


In 1984, Mike Lazaridis and a couple of others founded RIMM- with $15K from family, and a contract from GM. Jim Balsillie joined the company in 1992 and is Co-CEO with Lazaridis [a very strange arrangement, but the success of RIMM will ensure that this arrangement will not be questioned for now. Other top brass have been at RIMM for in excess of a decade, and but for the back-dating of options in 2006, and accounting issues [with Lazaridis and Balsillie personally coughing up the corporate costs for these corporate governance issues], they have done well - but they will be tested like they never have been - in the next twelve months.

Balance Sheet

RIMM’s balance sheet is liquid, with no long-term debt, and cash of $2.2 Billion. More importantly, TTM ROA was 33% - with a financial leverage of 1.32. ROE was 43% for the same period. Cash flow is at $2.5 Billion/year run-rate for fiscal 2009 - with FCF in excess of a billion [run-rate for fiscal 2009]. My only concern with the balance sheet is the growth of Trade Receivables from $1.17 Billion on March 1, 2008 to $1.77 Billion on Aug 30, 2008, an increase of 51%, and other receivables rose by 59% from $75M in 03/2008 to $118M in 08/2008. In the same period, inventories rose by a more modest 29% from $396M in 03/2008 to $512M in 08/2008. 

The competition

I expected GOOG’s Android to be much better than it is.  For starters, I was sure that the device would support Microsoft Exchange, but it doesn’t.  This buys RIMM more time to improve their software for their Bold [RIM's answer to the iPhone]. I’ve seen the first revision of Bold, and it is god-awfully slow when surfing the internet using its WiFi radio.  The GOOG/T-Mobile T1 is a lot better, and its browser, and WiFi radio are on par with iPhone.  I did not get an opportunity to check out all three devices at a 3G access point - so, I’m sure that someone reading this will fill in the blanks.  I know the answer, but I do not want to claim that I looked at it.

The Bottom Line: If you need a phone with Bluetooth 2.0, OBEX/DUN/A2DP, voice dialing, Built-In GPS Navigation [as opposed to a third party solution], want your corporate IT Department’s support, and want to cut and paste, then The BlackBerry wins. Whereas, if you want to waste your time on FaceBook/YouTube, text, use not-so-secure e-mail and look cool doing it, then the iPhone is for you!  In a single sentence, corporate accounts prefer and will for now continue to prefer the BlackBerry.

The temporary dip in the stock’s makes RIMM a buy at the current quote.

Disclosure: No positions in RIMM [yet], but likely to initiate by the time this is published.