Will the RIM-Pire Strike Back? Not Likely and Here's Why.

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It is generally accepted that Research in Motion (NASDAQ: BBRY) will not return to its former glory. The company is hoping to remain in the third top spot in market share, despite having no next-generation product on the market. Just before RIM reported its quarterly earnings in late-September, “professional” analysts wrote-off RIM. They under-estimated the company’s ability to maintain its subscriber base, and cut its losses in half.

RIM shares are up 114% from its 52-week low. In this analysis, it will be argued that despite the massive rally in shares of RIM, investors should avoid it prior to its quarterly earnings report. RIM reports earnings on December 20, after the market closes.

Shares in RIM are up on excitement for Blackberry 10, and a subscriber base that held steady last quarter. RIM cut its quarterly loss in half, after shedding jobs and cutting operational costs:

Quarterly Earnings

 

2/29/2012

5/31/2012

8/31/2012

11/30/2012

Diluted EPS

-0.24

-0.99

-0.45

N/A

(Data Source: Kapitall.com)

In the current quarter, investors should not expect subscriptions to grow. With Google (NASDAQ: GOOG) Nexus 4’s devices selling for just $299 (no-contract), the Apple (NASDAQ: AAPL) iPhone 5, selling at a rate at or above production rates, and Microsoft (NASDAQ: MSFT) on a renewed quest to increase Windows Phone 8 market share, RIM could disappoint.

Valuation

RIM’s valuation is less relevant than its weakening position against Apple and Google Android. In the last quarter, RIM’s market share shrunk again:

 

Valuations are appropriate for RIM’s current competitive position. The company has a book value of $17.88 per share, and trades at a price to book ratio of 0.7 times. What matters in the short-term that RIM reduced its costs. This protects the company’s cash balance, and ensures the company is not over-spending on R&D for Blackberry 10.

Competition

Assume for a moment that Google and Apple are not RIM’s main competition, because they are too far ahead. RIM’s closest competitor is Nokia (NYSE: NOK) and Microsoft. The market currently believes that Nokia will do well with its latest Microsoft smartphone device. Nokia is outperforming RIM on a 6-month comparison:

 

(Chart Source: Yahoo Finance)

Investors have every reason to be bullish on Nokia. Nokia’s LTE unit doubled its revenue, and grew market share in LTE. Its maps unit is being recognized for its value, thanks to Apple’s poorly released Map application. Finally, Nokia’s Windows Phone 8 is beating management expectation in Europe (notably Germany).

RIM has yet to release Blackberry 10. They will miss strength from Christmas sales, and will only most-certainly capture loyal fans when finally released in early-2013.

Conclusion

RIM’s story has not changed. Investors buying RIM now must recognize they are buying a company whose completive positioning in the marketplace is still weakening. Blackberry 10 (“BB10”) will, without any doubt, launch successfully. Investors must consider how much premium to assign for this success. Developers are supporting the new operating system more strongly than they did for Playbook’s OS 2.0. Loyal customers will pick a BB10. Enterprises will buy the Fusion server software, and upgrade their Enterprise Server software. Still, other companies are embracing BYOD, and iPhones and Androids will continue to be a competitive force RIM must face even after BB10 is released.

For these reasons, investors should not be buying shares in RIM at this time.


chrispycrunch has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. 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!

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