Is This Turnaround For Real?
Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I wouldn't have believed you
If you had told me that Research In Motion (NASDAQ: BBRY) would have traded above $11 back in September I would have laughed at you. Now, the bulls seemed to have been rewarded. RIMM is trading above $11 and is up 65% over the last 3 months. This is largely attributed to the upcoming release of BlackBerry 10, which is slated to be launched on Jan. 30, 2013. Is this turnaround for real? Peter Misek of Jefferies, who correctly predicted the fall of RIMM, is calling it a buy and raised his rating on RIMM. He now has a $43 price target on RIMM, with BB10 having a 20-30% chance of success. Is he right?
BlackBerry 10 seems to be the make it or break it moment for RIMM, just like Microsoft's Windows 8 is for Nokia (NYSE: NOK). The argument for Nokia and RIMM is that the telecom companies don't want to be so reliant on just 2 operating systems: Apple's (NASDAQ: AAPL) iOS and Google's (NASDAQ: GOOG) Android OS. That's why they would be willing to help out another OS to give themselves more power over subsidies. So far these 2 companies dominate over 90% of the smartphone sector, so you can see why companies like AT&T and Verizon are looking for an alternative. Little is known about what BB10 has in store, but some pictures have been "leaked" (some think that these leaks are timed to build up momentum) that show a phone with a 4.2 inch touchscreen with an almost iPhone-esque look. Simple rectangular shape with curved corners and a rectangular screen.
From the London leak
In order to lure customers away from Google and Apple, RIMM is trying to make switching from app to app more seamless with their BlackBerry Hub and Flow UI (User Interface) software. Now you can go from menu to app without having to go back to the home screen (like you do on the iPhone or Android). Hopefully we will get more color before the Jan. 30 launch date, where RIMM will release BB10 and 2 new handsets.
Financials and Assets
As of the last quarterly report, RIMM had $2.065 billion in cash, but it lost money in the last two quarters and is expected to lose money in the next quarter. It needs BB10 to sell well in order to become profitable again. RIMM also has value in its patent portfolio, with Christopher Marlett, CEO of MDB Capital, saying that the patents could be worth anywhere from $1-$4 billion, depending on whether or not a bidding war ensues.
Nortel's patent portfolio went for $4.5 billion as a bidding war raged on between Microsoft, Apple, Google, and RIMM. To put that into comparison, Google started out with a $900 million bid for the whole patent portfolio. After the bidding war it took a consortium and $4.5 billion to buy up those valuable patents. Another area of value for RIMM is in its email delivery service, which has about 78 million customers. 20 million of those customers are with the government, so they mostly likely will stay even if the other customers leave to other competitors because of the security BlackBerry offers. This service could be worth between $2-3 billion to a competitor, so there is a fair amount of value there.
Why BlackBerry 10 matters
RIMM has fallen by over 90% since its peak in 2008, largely due to the massive amounts of market share loss in the smartphone sector. RIMM needs BB10 to take back that market share. Back in Q1 2008, RIMM had 44.5% of the smartphone market. Now it has a small 4.2% of the global smartphone market, so you can see just how hard RIMM fell. If BB10 can regain some ground, then RIMM would become a great buy.
The problem is that only limited amounts of information has been released about BlackBerry 10, so it is too hard to tell if this turnaround is for real or if investors are getting too anxious about a possible flop. Peter Misek gives BB10 a 20%-30% chance of being successful, so you do the math. RIMM has value in its email delivery service and its patent portfolio, but that is worth around $10 a share excluding BB10. So if BB10 is a flop, then shares will fall, but you have a cushion of value at around $7-$10 a share. If BB10 is a success, then RIMM could skyrocket upwards towards Peter's price target of $43. I'm neutral on BB10 until more information has been released, but I think its stock price has rallied too much on speculation.
callumturcan has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!