Research In Motion: No News Is Not Good News

| About: BlackBerry Ltd. (BB)
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This might sound shocking to you, but we've gone two whole months without any negative news coming from Research in Motion (RIMM). Yes, two whole months without any warnings that revenues would miss, earnings would fall short, extra charges would be taken. Why is this shocking? Well, we had five warnings from the company last year alone, here is short version. For the long version, click here.

  • April 28, 2011: RIMM warns Q1 revenues and earnings per share will be below expectations.
  • June 16th: RIMM misses revenue numbers, lowers full year earnings per share guidance for fiscal year (ending Feb. 2012).
  • September 15th: Company misses on revenues, earnings per share, says full year earnings to be at low end of range.
  • December 2nd: Company takes huge charge on Playbook, warns on quarterly earnings per share and full year earnings per share.
  • December 15th: Company issues lower than expected guidance for Q4, does not give full year guidance (but given Q4 guidance, they are essentially warning on the year).

Research in Motion's fiscal year ends in a couple of weeks. I don't think it is going to be a good 4th quarter, especially after the huge iPhone numbers and iPad numbers we saw from Apple (NASDAQ:AAPL). In the third quarter for RIMM, which ended in November, the company sold 150,000 Playbooks. Apple sold over one million iPads per week in its quarter. Apple is almost selling as many iPads per day as Research in Motion is selling Playbooks per quarter. I know they aren't quite comparable products, but just think of the math there. In the 4th quarter, Amazon (NASDAQ:AMZN) started selling its Kindle Fire tablet, and it probably sold a few million in the quarter, even though we don't get the exact numbers from them. Amazon will be launching a new version of the tablet this year, and with Apple coming out with the iPad 3, what do think is going to happen with the Playbook? I'll give you a hint, it's not good.

Now onto the phones. Apple sold over 37 million iPhones in the holiday quarter. How many phones do you think RIMM will sell? Well, in its latest quarterly report, RIMM expected to ship 11 to 12 million units in the 4th quarter. They just cannot compete with Apple. In the third quarter, RIMM sold less phones than it did in the previous year, and selling prices were down! Research in Motion gets less than $300 in revenues per phone, and Apple is selling its iPhones for more than $650. If you can't figure out why the former is struggling, that figure alone should speak volumes.

Let's look at the forecasts, and I'll give you a timeline based on some of my past articles on the company. First, we'll start with the fiscal year ending in just a few weeks.

FY End Feb. 2012 Revs. Growth EPS Growth
September 19th 2.0% 20.0%
December 14th -2.5% -30.0%
December 15th -3.7% to -5.2% -32% to -34%
February 10th -5.2% -35%

The numbers are not good. Now of course, this could lead to Research in Motion beating estimates when they report, but estimates have gotten so low that it doesn't really matter in my opinion. The guidance they give will move the stock. Now let's look at the numbers for the next fiscal year, ending in Feb. 2013.

FY End Feb. 2013 Revs. Growth EPS Growth
September 19th 8.0% 2.0%
December 15th* -1.8% -7.7%
February 10th** -5.40% -29.30%
*EPS growth number based on midpoint of guidance given for Q4 to give full year earnings per share estimate.
**EPS growth number based on current expectations for current fiscal year, which at moment is $4.13.

Research in Motion didn't just have a bad year. It's going down in the future too. We are now starting to hear of multiple companies switching from the Blackberry to the iPhone, and we even heard that the Air Force may buy 18,000 iPads. If Apple starts getting contracts from the US government, it will only increase its position in the market. What is Research in Motion doing? Well, they've been delaying their products for months and months.

Even Nokia (NYSE:NOK), the phone maker who many call a "dead stock", has something to offer with a somewhat decent dividend. Nokia recently launched its Windows based smartphones in Europe and Asia. The company is projected for 3% revenue declines in 2012, but 2013 revenues are expected to pick back up by over 4%, and that's certainly much better than Research in Motion. Analysts also like it better, more on that later.

Don't just take my word for it. Here's what analysts think of Research in Motion compared to the other three names I've mentioned.

Rating 3.3 1.7 2.1 3.1
Current $15.44 $493.42 $185.54 $4.96
Mean Target $17.29 $568.49 $216.77 $6.36
Mean Upside 11.98% 15.21% 16.83% 28.23%
Median Target $16.00 $599.00 $220.00 $5.88
Median Upside 3.63% 21.40% 18.57% 18.55%

Rating is based off a 1 to 5 scale, with 1 being an extremely strong buy, and 5 being a strong sell. Research in Motion has the worst rating. It also has the lowest potential upside, according to mean and median price targets. There are even some analysts with price targets for RIMM as low as $8. That's nearly 50% below where we are now.

Research in Motion is a great short candidate now, and the company is just struggling right now. Apple is dominating the market, and even Amazon's Kindle tablet has done much better than RIMM's Playbook. I usually only recommend buying a stock for takeover speculation if the fundamentals are good, and that is not the case here. I think this company will re-test its lows, perhaps when they next report earnings in a month or so.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.