RIM's Stock Explodes - iPhone Will Obliterate It

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

Research In Motion (NASDAQ: BBRY) has nearly doubled from its lows reached on Sept. 26, from $6.22 to $11.98 as of Monday’s close. This was largely due to analysts upgrading the outlook for the long, long, long awaited launch of BB10.

So, should you run with the crowd and buy?

I will explain the investing logic behind such a buy, and also explain why my answer is a definitive NO,

The Counter Thesis

You have a roulette wheel- the odds of any individual number coming up is exceedingly low. In fact, the casino will offer you 35:1 odds whereas there are 38 possible numbers (with zero and double zero) thus giving the house a huge statistical edge.

Now, let’s say the casino suddenly offers one time odds of 50:1. You’d be a fool not to take them. When a stock reaches such a low point, when the perceived odds seem stacked against the company that it trades at such a valuation, some traders come in and say, the odds are wrong and buy into the company. 

However, I say, when placing a bet on Research In Motion today, my estimation is you’re pretty close to betting that one roulette number, and I believe the wheel is still heavily tilted towards zero.

Why?

Only a few years ago, my friend was urging me to upgrade and get a Blackberry. “These things are absolutely amazing!” she cooed, holding it like her child. I hadn’t seen for almost a year, today she uses the iPhone, as does her whole family. No questions asked.

The biggest Blackberry fan, the reason I almost got one years ago, was now with Apple. (NASDAQ: AAPL)

Now I have spoken with about ten people whom I didn’t know before meeting in a group setting, carrying around the iPhone 5. As I recently went long Apple, I wanted to do my research.

“How do you like your phone?” I ask.

The most common response: “I like it, but my old phone was a Blackberry, so how couldn’t I?”

That’s right, most of the randoms I have met with the iPhone 5 were new members of the Apple ecosystem taken from RIM, not Apple aficionados who couldn’t wait to update. The sample size was enough to leave me scratching my head, saying this is unlikely to be strictly chance.

Most of these people had specifically waited extra time, to be able to upgrade to iPhone. They were sufficiently disgusted with their Blackberry, which granted, was at least two years old, that they figured any other phone Must be better.

Problems at RIM

Why did RIM go from leader to has been? RIM management got it wrong when they said there was no way consumers would go for larger phones you could barely fit in your pocket with a lower battery-life. Dead wrong.

People like to use their phones as their mobile computer, to be able to read- one man told me he loved that he could actually read more than one line at a time with the bigger touch screen the iPhone 5 offered him.

RIM badly misjudged consumer preferences, and Google (NASDAQ: GOOG) and Apple simply innovated and left the Blackberry in the dust, their users weeping; at least until they had a chance to upgrade.

Today

Quoting this article by fellow Fool, Rich Duprey from Nov 26: “analysts are now simply trying to outdo one another with how upbeat they can sound about the tidal wave of change RIM will wreak on the market. One analyst calls for a price target of more than $40 a share, while another upped his estimates of phone sales to 35.5 million from 31.6 million ... all for something not even on the market yet!”

That’s right! BB10 isn’t even due out until March. BB10 has been fraught with delays, and by the time it comes out, Google might have released a new version of Android, Nokia (NYSE: NOK) might be gaining traction … I mean, Windows Phones have actually earned really good reviews, but they haven’t sold well at all, and Nokia has much more global reach than RIM.

The old axiom in business is it costs much less to keep a customer happy, than to get a new one. RIM used to be the leader of the pack, its stock flying skyhigh, with loyalists like the above mentioned Heidi to show for it. RIM was cool, and hip.

No longer, and even if BB10 is as good as or slightly better than Android, or the iOS, the fact is, those customers would be awfully hard to regain. On the bright side in Sep '14 RIM's old customers would be upgrade eligible. 


margiecfl has long positions in Apple and Google. 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!

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