RIMM’s Wild Ride: Time to Jump Off?


BlackBerry maker Research In Motion (Nasdaq:RIMM, TSX:RIM) has definitely seen its share price in motion through the past couple of years.  That share price has nearly tripled in the past four months, but is this more “irrational exuberance”?  Or did that September low of $6.18/share put an unreasonably low value on the company? Disclaimer: yes, I hold RIM stock.  I followed it down and I’m following it back up.  As well, I’m not a financial manager and barely know what I’m talking about.  Talk to a professional before proceeding with any investment.

Though the iPhone had definitely taken the edge off of RIMM’s peak of $144/share back in 2008, the stock still had a decent price of around $70/share going in to 2011.  At that point they still had over 20% of the ever-expanding US smartphone market, and were on the verge of launching a highly-anticipated tablet to compete with Apple’s iPad.  And then all hell broke loose.  After the botched PlayBook launch the RIM executive had to release below-estimate earnings for their fiscal second quarter, cutting the share price in half.  The delays in updates for the PlayBook and the catastrophic network outage didn’t help.

The coup de grace for the stock came in December of 2011, when the company finally came out and admitted that their highly-anticipated new platform, BB10, wouldn’t be available for another year.  Even worse, they’d had to take a near-half-billion dollar writedown on PlayBook inventory due to slow sales.  In the wake of this, the share price hit a low for the year of $13.44.

2012 was something of a rebuilding year, with no significant new product and another pushback on the BB10 introduction that cut the share price even further, bumping along the bottom of the $6-8 range for the summer.  Think about this for a minute: here was a company that was still making money (granted at a rapidly-declining rate), held no debt, and had upwards of $2.5 billion in the bank.  RIM has about 525 million shares outstanding, so a $7 share price gave them a total market cap of not much more than $3.5 billion.  That’s the total value that the market had put on the company.  Take out that cash reserve, and that means the market was valuing the company at only $1 billion.  Despite their hard assets, despite their intellectual property, despite their huge, worldwide proprietary network, they were worth only about 1/1,000 of what analysts were predicting Apple would be worth.

You’d think that RIM itself would be suffering from a bunker mentality and poor morale through this time, but if they did it didn’t show.  New CEO Thorsten Heins acknowledged RIM’s issues but expressed excitement over future product, and the company undertook a massive worldwide campaign to engage application developers in an effort to bolster the online app store for BB10.  Instead of blowing deadlines, RIM was actually making release targets on time.

The market seemed to recognize this in September, as the stock started a rapid rise off its lows.  Some of this–I think–was a recognition that RIM was executing much better as a company.  The growth continued as reports came in of generally disappointing sales for Windows Phone and even the iPhone 5 in the last quarter of 2012, and RIM shares–stuck in a $6-8 range for months–closed VERY close to $18 on Friday.

For the past two years, RIM shares have traded on sentiment, and the sentiment has been overwhelmingly negative.  Now that we’re on the verge of a crucial product launch, RIM is trading much closer to “book value” than it has in years. People who have seen demo previews have given glowing reviews for the new devices, and it would appear that BB10 will launch with a gratifyingly healthy app portfolio.  I’ve seen analysts project that with a good launch for BB10 we could see shares in the $40-$60 range by year’s end.  I think these targets are plausible, and I think BB10 is good enough to win RIM back some market share, but I also think it’s too early to gauge how that will affect shares.

Bottom line, RIM stock is finally back to something resembling reality.  Wait for reliable sales numbers before jumping in.