Research In Motion Ltd.: sigh.
The BlackBerry maker has taken another big step toward irrelevancy, with its latest quarterly financial report. It wasn’t that long ago that the company at least had the cachet of a big-dollar takeover target, with observers mulling what the company would be worth to some well-heeled, cash-rich acquirer like Microsoft Corp.
Now, even that cachet is fading. Today, a sale is seen as nothing more than a good way to put this struggling company out of its misery.
With RIM’s share price down 19 per cent on Friday morning, to its lowest level in about nine years, the focus has shifted to whether the company can survive. An increasing number of analysts are throwing in the towel.
Following the release of RIM’s results on Thursday evening, Jefferies’ Peter Misek maintained an “underperform” recommendation on the stock but cut his target price in half, to just $5 (U.S.) from $10. Societe Generale’s Andy Perkins cut his recommendation on the stock to “sell” from “hold.” And CIBC World Market’s Todd Coupland – most recently a rare supporter of RIM, with an “sector outperform” recommendation and a price target of $20 – has now done a 180: His new recommendation is “sector underperform” with a price target of $8.
The downward shift follows quarterly results that managed to disappoint even ultra-low expectations. RIM reported a loss of 37 cents a share in the first quarter, after excluding some one-time items, which is about five-times worse than what analysts had been expecting.
The underlying business of moving smartphones is simply deteriorating at a brisker pace than anyone had expected. RIM’s sales fell a remarkable 43 per cent over last year, missing expectations. And while some observers had believed that its upcoming BlackBerry 10 might provide a rebound in its fortunes, Thursday’s quarterly release came with news that the release is being delayed until the first quarter of next year.
To be sure, observers are still talking about sale prospects – but they don’t come with much excitement. According to Michael Walkley at Cannaccord Genuity, the BlackBerry 10 delay increases the likelihood of a sale. But it’s clear that with RIM’s sliding share price investors are hardly enticed by such a prospect. The company’s market capitalization is below $4-billion now – pocket change for companies like Microsoft or International Business Machines Corp. – which is less than half its level at the start of the year and a tenth the level just 18 months ago.
Steven Li, an analyst at Raymond James, is now valuing the stock as a takeover, but pegs the price at just $9 after factoring in patents and licenses, network operations centres and cash – and then applying a 50 per cent discount.
“If the money-losing hardware business could be shut down, RIM could surface $16+/share in value including its lucrative Services business,” he said in a note. “Without a sale, we expect the deteriorating fundamentals to continue to erode value.”