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Few Reasons Why I Like RIMM

|Includes: BlackBerry Ltd. (BB)

 Give me the luxuries, and anyone can have the necessaries.”

Oscar Wilde

First of all to all of my readers I apologize, more than ten days have passed since my last post. I was busy doing “other” stuff, mainly things that aren’t important. And some of things that are, at least to me. I have focused my time on analyzing a whole bunch of businesses. Today, mostly thanks to the QE1 and QE2 “Fed Strikes Back” the stock market is overvalued by lets say 35% according to Jeremy Grantham, and he is no fool. Hence, as I was saying, I have analyzed a whole bunch of them and plenty are dogs and plenty of them aren’t even that. Wonderful business are overvalued and fair business are still, well, fair. But one stock was rather interesting, as you can guess from the title I’m talking about RIM, so today my evil plan is to convince you buying a BlackBerry rather than a iPhone or Android device.

Here are the reasons why and few why not:

Lets face it, the environment in which they do business is at least highly competitive. We are here talking about Apple, Google, Nokia etc. Here we have Q3 2010 smartphone world share according to Gartner. 

and here is the same chart for 2009 according to Gartner

What you can see from the chart (when only comparing RIM) is that they have lost a significant amount of the pie. Which is not that of a surprise if you think about their products and comparing them to android and iOS powered devices at present time. What is interesting here is that the blackberries of the future might look a whole lot prettier, and today the pretty is the only thing that actually sells. According to Gizmodo RIM acquired TAT (The Astonishing Tribe), this wouldn’t be so interesting if we weren’t talking here about the “interface gurus”. The same people that shaped Android. Now please take another look at the chart and compare the share of Android in 2009 and 2010. Watch out competition because a new beautyberrie will hit the town!
The company has sound fundamentals. This just might be a wonderful business at a fair price. The fiscal 2010 was another successful year for RIM, they have shipped 37 million BlackBerry devices. RIM revenue growth was 35% to about $15 billion and net income was increased by 30% to $2.5 billion in fiscal 2010. The company has more than 550 carriers and distribution partners offering BlackBerry products in 175 countries around the world. RIM is experiencing great global growth (outside North America). And when I look at the balance sheet, cash flow and income statement I can’t stop thinking how undervalued they actually are. 
Their Net Income is $2.6 billion dollars and their Mkt cap is $32.86 billion, if you compute it you get that the P/E is just shy over 12. And what I really like to see is that they have steady income and revenue increase. When you look at the balance sheet you can see that YOY they are increasing cash which is good for their business in case they need to invest it in great things like they did with TAT. They hold around $1.6 billion in cash at this moment, $3 billion in accounts receivable. Total current assets are $6.14 billion, and total liabilities are just $2.75 billion. They have little or no debt, which is more that welcome in my book. Few more things I like to see when analyzing business: Their ROA is 29%, remember they have no debt! When looking at ROA I think about the management ability to make profits with investments, we all do. But it is more that obvious that the RIM management is superb at throwing good money after good money. Further, their ROE is over 40%, talking about great profitability. They also have high margins, their net profit margin is just shy over 17% and operating margin is 23%.

Some other interesting numbers. RIM has averaged over 80% annual growth in their subscriber base since the launch of BlackBerry. Over 250.000 organizations around the world are currently using BlackBerry enterprise server. Geographic Revenue Mix is looking something like this: 58% devices are sold in the U.S., 5% in Canada, 10% in U.K. and 27% are other countries. Total operating expenses for fiscal 2010 as a percentage of revenue increased by 1% to 22.5% of revenue compared to fiscal 2009. R&D expenditures increased by $280 million to $965 million, or 6.5% of revenue in the fiscal 2010 compared to 6.2% of revenue in 2009 according to the annual report. The increased R&D is attributable with higher salaries and new product development cost and office and building cost. The Company’s Board of Directors has authorized a Common Share Repurchase Program for the repurchase of 21 million common shares. 

Some corporate goals that make me feel goosebumps in a happy and excited way! According to the annual report:

  • They will do their best to enhance the user experience by launching a new Webkit-based browser and new user interface for BlackBerry smartphones, they will grow the number of applications and services available for the BlackBerry platform.
  • They wil launch several new BlackBerry smartphones, I hope we will see the touch of the TAT team. 
  • Aggressively grow the BlackBerry subscriber account base and deliver solid financial performance and profitability for our shareholders.
  • Attract, hire and retain the best available talent to support RIM’s customers and maintain market leading position. 

Conclusion and the current problem about the future earnings outlook. The “new” BlackBerry device Torch sales are somewhat slow (in the first week of sales Blackberry sold 150.000 units of Torch and Apple sold 1,7 million of iPhone units) at the moment iPhone and Droids are getting all the glory. In my opinion that is expected. Torch compared to the high end Androids and iPhone 4 looks a little bit old, and not only that the device looks old but inside it “feels” old to, the device has 480x360, 3.2 inch display and 624 MHz processor which is far behind the competition. But again 150.000 units sold isn’t that bad when having in mind that the iPhone is selling in the U.S. on five carriers and Torch is selling on just one, AT&T. In my humble opinion they should be happy about the number of devices that they sold in the first week and by now. Don’t know why suddenly everyone claims that the Torch is a massive failure, I don’t agree. In my opinion RIM was getting it wrong by announcing that the Torch was a and I quote “a quantum leap over anything that’s out there” (Words of CEO Jim Balsillie), they have created great deal of hype. The problem for RIM is that they have expected to sell much more than 150.000 units and they expected that they can compete with the sales of the iPhone 4 which is obvious they can’t. This is why at the moment investors don’t believe in RIM, this is why more than 5 analysts downgraded them and this is also why I have faith. It is hard to compute the future outcome and earnings of the BlackBerry devices and it is sure even more harder to think about and imagine the smartphone market of the future. But one thing for me is clear as a day, if the day is sunny and you are on the coast of Croatia. What I wanted to say is I believe that the future is going to be all about the smartphone devices and that RIM will fight for their stake like hell. They are surely aware of the future potentials and that is why they bought TAT (The Astonishing Tribe), they are aware that their interface is getting old and uninteresting and that Android and iPhone are like to angry pacmans eating their share bit by bit. The Astonishing Tribe as I mentioned are known as the “interface gurus” and if anyone can help RIM make better devices they are in my opinion the guys for the job. This is why I believe RIM has the potential to get back on track and keep up with the competition. In lack of a better word have some .. FAITH!

Thank you for reading.

And stay tuned!

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