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Martim Macedo
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I enjoy doing research and analyzing companies, hoping to find good investment opportunities. I'm Portuguese, a big fan of Warren Buffet and looking to share and discuss my ideas with other investors.
  • Blackberry: A Company Being Reborn 0 comments
    Feb 4, 2013 8:19 AM | about stocks: RIMM

    With the introduction of Blackberry 10, former Research in Motion (RIMM) and now Blackberry (NASDAQ:BBRY) finally completed the first phase of its rebirth.

    Almost a year ago, I wrote my first article about this company and I defended the view of investing in RIM like if you were investing in a start-up. In short, as with any start-up, the future of the company depended on its new product, but, in this case, you had the advantage of investing with a discount to book-value, a healthy balance-sheet, a strong brand, and a lot of loyal costumers waiting for the new Blackberry. From that point of view, it was difficult to find such an attractive proposition to invest.

    As with any start-up, the first goal an investor has is to see the company's vision translated into an actual product and, a year later, that goal is now reached.

    Blackberry 10 is here

    With the arrival of the product, things enter into a more decisive phase. It's not that anything dramatically good, or bad, is expected in the short-term but, everyday, consumers begin to vote with their money. Of course this is only the beginning, we have only seen the first two products, and I'm confident that a lot of new and improved products will continue to be delivered. But, until we get to know the numbers, we have to continue to use our own opinion about the product, and, most importantly, if we see ourselves buying one.

    At this moment, it's very important that the company executes very well with the launch of the new products. In order to do that, it's important that they have the means and resources to do it properly, and, given the time they had to prepare to Blackberry 10 and the company's current financial situation, things have a good probability of going well. It all comes down to the capability of management to execute and, in this respect, I think that only positive things can be said about the current CEO and his team. When he took over, the company was almost without direction and had the arrogant position of thinking that whatever product they produced, since it was a Blackberry, consumers would love them. The Playbook was an example of that, and we all know how it went.

    Since Thorsten Heins took charge, he correctly acknowledged that given the recent missteps, the company had one more chance of being successful again. The priority was to develop Blackberry 10 and make sure that when the new products came to the market, they were properly developed. Given that he delivered what he promised over the last year, I am confident management can be successful with this new phase that it's now starting.

    Should you invest?

    In order to decide what to do with your money, you should be focusing on answering two questions. The first one is if you see yourself buying the new Blackberry products. If the answer is yes, then you need to answer the second question: How much am I willing to pay for a part of the company.

    For a current market cap of around $6,8 billion, let's see what you get:

    - Cash and equivalents (in millions) $2,731
    - Goodwill $0
    - Total assets (in millions) $12,639
    - Long term debt (in millions) $0
    - Total equity (in millions) $9,342

    From a static point of view, the investment proposition seems attractive. The recent fall in the company's market cap made it possible to invest with a significant discount to book value, and, you wont be paying for any goodwill or having any kind of debt rollover pressure since there is no long term debt and the company has $2,7B in cash. But things are not static and at this point it's difficult to know how the next few quarters will be in terms of financial performance.

    We do not know how much they will be spending promoting BB10, how long it will take to be profitable, and for how long will current "old" Blackberry phones keep on selling in other regions of the world.

    Will they be making $2 billion in yearly profit in the future? Will the company be more profitable? Less profitable?

    Nobody really knows right now so, again, instead of focusing on financial expectations, focus on the product, on your opinion about it. If you like it, this may be a good opportunity to invest in the company.

    Don't worry about the financial performance right now. If the product is good, the numbers will follow.

    Disclosure: I am long RIMM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Stocks: RIMM
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