Excellent Balance Sheet and Large Upside Potential

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Research in Motion (NASDAQ: BBRY) is a name that has not been on too many buy lists for many years now, but it may be time to at least pay attention again as it may have found a bottom.  RIMM suffered dramatic share loss and a corresponding decline in revenue and earnings over recent years.  It was the darling stock for a short trader.  The company was hemorrhaging sales and they had a management team with no idea how to stop it.  

The shares of RIMM peaked at $144.56 on June 16, 2008 and fell to levels below $7 late in the third quarter of 2012.  However, the share price has rebounded over the past quarter and trades at $11.91 as of January 7.  There is hope behind the Blackberry 10 (BB10).  There is at least some reason to look at buying, RIMM may stop the share loss with BB10 and sales will soon flatten and maybe even grow.

RIMM recently reported their fiscal third quarter in late December and the shares sold off behind what is likely a non-event.  The release of BB10 is really the only event worth watching for RIMM since its success or failure hangs on it.  Revenues were down by 47% year over year in the quarter, RIMM incurred an operating loss as usual, and saw their subscriber base fall by one million to 79 million - largely behind losses in North America.  Market share loss is the problem and has continued to fall most recently to 7.8%, a distant third to Google’s Android at 53.6% and Apple (NASDAQ: AAPL) at 34.3%. The velocity of the decline has somewhat softened, but it is still far below the over 20% share as recently as early 2009.  Apple is rumored to be building a lower cost iPhone model to compete with some of the lower cost smartphones using the Android operating system.  This cannot be good news for RIMM as many Blackberry models are in the “value” sections of smartphone retailers. 

RIMM’s future is likely tied to one event, the roll-out of the Blackberry 10 expected on January 30.  The operating system was redesigned and expected to have similarities to Microsoft’s (NASDAQ: MSFT) Windows Phone 8.  Microsoft released the Windows Phone 8 OS in October of 2012 and has become the standard operating system for Nokia smartphones.  Windows Phone 8 has differentiated itself with a completely different look than the Apple OS, removable storage support and excellent compatibility with Skype.  The Astonishing Tribe, a positively viewed acquisition in 2010, designed many of the new Blackberry OS features, including the interface which some technology commentators cite in their positive expectations for the device.   

The balance sheet is in good shape at RIMM and they may need to use it to aggressively market the Blackberry 10.  RIMM has over $2.9 billion in cash and no long-term debt.  Cash flow from operations of $958 million in fiscal 3Q13 is an ongoing positive. 

There are two pieces to the Blackberry 10 roll-out, one is the reviews and second is translating those into sales.  Many expect the device will be at least equal to other smart phone OSs on the market which should lead to somewhat favorable reviews.  Positive reviews should translate to an increase in the share price. 

The second piece is sales and adoption of the BB10.  The Palm Pre was Palms attempt to keep the doors open.  The device was a relative equal to others on the market, but without must have features, no one wanted to make the switch from the system they knew.  Palm also did not put enough marketing dollars behind it. 

Ideally, RIMM must have features that help stop share loss and lead to increases.  That said, if they are at least equal and can market the product, they could have some degree of success.  But there is still another hurdle, Windows Phone 8 and Nokia are fighting to gain share in the Smartphone market.   Both have new devices that will likely have a similar set of features and have marketing dollars behind them making RIMM’s job more difficult.

RIMM’s results are worth watching but probably not worth owning.  In order to hold the stock, RIMM would have to have a clear advantage in the OS versus competitors or show the Street things are getting better with a few quarters of steady results.   

mthiessen has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple 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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