RIM is Worth more than Peanuts
Moustafa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
RIM (NASDAQ: BBRY) released its quarterly earnings last week and as per their warning on May 29 issued a disappointing report. The shares were halted ahead of the report and since trading has resumed are down over 16% and are below $8 a share. After the report, it seems Wall Street in unison has written them off completely and many warn of a complete loss on the company.
This is surprising only because all of this information was already known. Very little new info was released in the report and it seems BB10 will be delayed until Q1 of 2013. I understand the news was not positive but no one expected positive news. As Wall Street loves to do, all the analysts tried to one up one another with negative forecasts.
This is usually a sign that there is an opportunity for intelligent investors in companies that are relegated to Wall Street’s wastebasket. I am not sure I would count RIM as one of those but I also don’t see it as worth nothing. RIM has a laundry list of problems that have all been well documented. The idea that RIM will eventually fail is a potential outcome as the shares are trading less than $8 away from failure. Though it sounds plausible it is very far from the actual truth.
RIM will not be able to compete with Apple (NASDAQ: AAPL) in the short or long term and will not be looking to unseat the powerful tech giant in any turnaround plans. Apple is firmly entrenched as a dominant tech player and if reports are accurate has a pipeline of Steve Jobs-influenced products for the next 5 years or so.
The reason I think it's silly to believe RIM eventually will go the way of Nortel is that its pieces hold value today and will still hold value tomorrow. The pieces that make up RIM are more valuable then the $4 billion market cap it presently holds. It has $2.2 billion in cash so that is valuating the parts of RIM at less then $1.8 billion. Though RIM has staunchly refused any plans to sell pieces of their business or their patents if a turnaround fails in the near term after the release of BB10, they will have no choice and this sale will net more then their present market cap.
They have enough cash to maintain their operations even while losing money until the Q1 of 2013 and quite honestly, they don’t have much more room for delays. I still think if they can come out with a good product with the BB10, they will mount a comeback that will be impressive from where they are now. They no longer need to look to rival Google’s (NASDAQ: GOOG) Android OS, they just need to release a solid product that will be profitable. Google has continued to innovate and with its purchase of Motorola will attempt to battle with Samsung and Apple for supremacy in the handset market. RIM has fallen so hard and so far that anything will help them move from here.
Hated by Wall Street and most of the investment community, RIM has brought this situation on themselves. But it must be said though that the market has grossly exaggerated their potential demise. Even if all else fails and they must sell their assets, it will yield more than their present market cap. I don’t see RIM being at this point worth less then $5 billion as a company and any price that values it below that is an inaccurate valuation of their current situation.
When you are a company that has over $2 billion dollars in cash, 78 million customers and a trove of valuable patents, you must really screw up to be valued below the separate parts of your business. The main point that seems to be lost on most that follow the stock is that it does have a moat and will be releasing a new line of products soon. They have made inroads in Central and South America, Southeast Asia and the Middle East. Their network is one of the most secure in the world. In a worst-case scenario, they never release the BB10 and they'll be forced to either break up the business or sell to the highest bidder. As much cash as Google and Apple have and as competitive as they are getting neither would want to allow RIM to be bought by the other. If BB10 is released and is a dud, they will be forced to explore the previous situation. If BB10 is remotely successful, there will be a huge rebound from where they are. Either way RIM is worth more than below $8 a share and will be worth more then that in a year whether the company is still operating or sold.
I own shares of RIM, Apple and Google.