RIM: “Less Bad” Proves Not Good Enough

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

Nothing good ever comes out of being stubborn. Even if you’re proven right, your “unwavering disposition” remains a fundamental flaw. While your “perverse nature” might lose you some friends, in the stock market this line of thinking is the surest way to lose all of your money.

Over the past three years, there has been no better example of this than investors of beleaguered tech giant Research In Motion (NASDAQ: BBRY). As the stock has plummeted from the mid $140s to $6, many RIM investors still insist that the market had gotten this story wrong.

While I do appreciate this level of loyalty, it also speaks to the pitfalls of “wanting to be right” at any cost – except it’s only yielded one disappointment after another. Meanwhile Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) continue to systematically steal market share, leaving RIM for dead.

However, RIM started showing signs of life. Here comes BB10 to the rescue. Investors wanted to believe that things would be different this time. But after the company reported third quarter earnings, the market realized that nothing’s really changed.

The Quarter That Was

Relative to expectations, RIM’s fiscal third quarter wasn’t all that bad. The company reported a net loss of 22 cents per share on revenue of $2.7 billion, beating Street revenue estimate of $2.6 billion. Likewise, RIM’s loss of 22 cents was narrower than estimates of 35 cents. This is certainly encouraging despite the fact that these numbers had previously been revised lower.

Looking at it in the broader context, RIM’s loss of $114 million in the quarter is a reverse from the profit of $265 million the company earned last year. Likewise, the $2.7 billion in revenue represents a year-over-year decline of 50% when the company generated over $5 billion in sales.

On the other hand, RIM has been growing cash at an impressive rate. The company has now amassed close to $3 billion on the books – helped by an additional $600 million earned during the quarter, with $950 million coming from operations. So RIM is doing a decent job managing costs and inching towards profitability.

However, while cash improvements are certainly positive, it doesn’t really change RIM’s grim outlook. Consumers still aren’t choosing BlackBerries over iPhones and Android devices. RIM sold fewer handsets than expected during the quarter. But I don't think it was realistic to expect otherwise.

The company said it shipped 6.9 million BlackBerry smartphones and roughly 255,000 BlackBerry PlayBook tablets. As disappointing as these numbers were, the good news for RIM is that device prices seem to have stabilized. But it’s going to require more than pricing efforts to win over consumers.

Moving Forward

Everything these days is about BB10, which is slated to launch in late January. Investors are hoping that this launch will bring in a new pay day – except it won’t. It will be at least two full quarters after the launch before anyone can say with any degree of certainty that RIM is stealing market share from Apple and Google.

However, how much share does RIM need to win to justify a share price higher than one that has already doubled? Also, that RIM will not have a “hit” holiday product to rival Apple’s iPhone 5, iPad Mini and Google’s Nexus 7 tablet is a disappointment. Sadly, it highlights how the company continues to “not get it” in areas where it matters.

Bottom Line

In a recent article, I advised investors to take their money and run. The premise was simple: Since the stock had more than doubled off of its 52-week low, it didn’t make sense to bet on higher gains. I was scorned for this suggestion. It looks like this was the right call. As of this writing, the stock is down over 10% in after-hours trading to $12.65 after having closed the regular session at $14.12. Stubbornness loses again.

rsaintvilus is long AAPL and has no positions in the other 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!

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