Since the initial shock of Research In Motion'sRIM-T disappointing quarterly earnings numbers last month, a number of investors have tried to call a bottom and point out how cheap are the company's shares. They shouldn't.
Although the stock could see a slight short-term rally from here, expect the shares to come under renewed pressure in the fall. On June 24, RIMM shares took a dive after it announced its earnings. They sold off from $58 pre-earnings to just below $48 on July 6. Since then, and timed with the general market rebound, the stock price has recovered to $55.
Amidst the sell-off, there were many RIMM bulls who made the rounds on television talking about how "irrational" the market's negativity on the stock was. Here are some of the arguments they made at the time in defense of the stock and why these arguments don't hold water.
Lofty Sales Projections
RIMM sold 11 million devices in its most recent quarter and surpassed the 100 million mark for BlackBerries shipped. The RIMM bulls find it hard to fathom that a company selling so many devices will not continue selling the same number on an ongoing basis.
I have one retort to that point: Remember the RAZR by MotorolaMOT-N? RAZR, of course, was a runaway success of a phone for most of the last decade.
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The iconic phone, which was introduced by former CEO Ed Zander in 2004, enjoyed a great four-year run and sold 110 million units over that time. But no one uses a RAZR today.
I'm not saying BlackBerries will disappear in two years, but it is clearly on the decline, as RAZR was in late 2007. With all the speculation about whether Apple will have difficulty surpassing the $250 billion market capitalization size, no one has yet asked: will BlackBerries hit a wall after they ship their 110 millionth device like RAZR did?
A Lock on Enterprise
BlackBerry bulls often talk about the security of these devices and how they are beloved by enterprise IT managers. They point out that enterprises have written apps for the BlackBerry, making the devices sticky.
While RIMM is still very popular with business users, there are two important points to make:
(1) the future growth of the mobile device market will be fought in the consumer space, not the enterprise one, and this is where RIMM is severely weak (see Pearl and Storm shipped device numbers for proof) and where Apple AAPL-Q and Google's GOOG-Q Android are strong;
(2) there are indications that the enterprise is starting to give their users more choice of devices.
On its recent earnings call, Apple's Tim Cook said that half the Fortune 100 had already begun iPad trials. He also indicated more headway in general in the enterprise space for iPhone. During a conference last May, Steve Jobs said Apple does best when consumers get to select their products versus when IT managers select for them. To the extent that this is a burgeoning trend that will continue, it's very bad news for RIMM.
Business Users Prefer the Tactile Keyboard
RIMM is a very effective email device. That was its initial purpose and it will always have that draw for power-user business types. Yet, because it's done email so well, it's never learned how to do everything else (browsing and apps) well that users (consumer and business) expect in a device today.
RIMM's success to date has covered up this blind spot. Now, in the last four months, it's been widely noticed versus iPhone 4 and Android devices but guess what, you can't snap your fingers now in Waterloo and expect that to suddenly change.
RIMM's Cheap
RIMM is selling at 9 times this year's earnings and 8 times next year's. For most S&P 500 companies, that valuation would signal a screaming buy -- but not in the face of slowing growth.
