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Thursday, 20 January 2011 13:44

Blackberries Lost More Market Share Than We Bearishly Anticipated While RIMM's Share Price Spikes: Is It Time To Revisit the Bear Thesis?

We have updated our mobile OS and handset manufacturer market share model and will make it available to subscribers as an online app by next week. In the meantime, let's review some of the findings - vendor by vendor. First up is Research in Motion. This was a profitable short in 2010, with the share price hitting our targets within 100 pennies. Since then, the stock has risen appreciably. Let's take a look to see if the rise was justified.

Page 5 of our Research in Motion forensic analysis (released in the summer of 2010 -  File Icon RIMM Forensic Analysis and Valuation – Professional & Institutional or File Icon RIMM Forensic Analysis and Valuation – Retail) clearly stated that while we expected RIMM's handset shipments to rise as a result of a rapidly expanding smartphone market, it will lose considerable market share. For the sake of those who do not subscribe, I will excerpt that page here:

As it turns out, it appears that we were erred slightly to the optimistic side with an 18% market share estimate for 2010. By the end of the 3rd quarter, RIM has fallen to 15.3% according to information calculated from IDC, and its decent has accelerated far faster than even we (the bears) have anticipated - a full 350 basis points for the quarter. This is 6x the decent of last quarter and 7 x the decent of the quarter before that. It is quite safe to assume that they will be materially below this point at year end (the data that we crunch is lagged by a quarter). This market share loss is most assuredly caused by the outsized growth of Android, which I will demonstrate in a minute. Below are charts generated from an updated version of the subscriber document File Icon Smartphone Market Model – Blog Download Version:

As you can see above, for the full year of 2010 RIM has trailed smartphone market penetration growth and that trail has increased each and every quarter with the rate of decent rapidly increasing.

RIM's share price has benefited from an increasing equity market as well as the announcement of new products. The Torch, although possessive of redeeming new qualities, is essentially still a generation behind Apple and 1.5 generations behind Android. See RIM Smart Phone Market Share, RIP?...

As you can see, from a relative perspective, the Torch is:

    • relatively underpowered with an anemic processor
    • relatively sparse in the RAM department
    • less resolute in its display WITH a smaller screen
    • compromised in its video capabilities
    • less endowed with i/o and radio functions
    • equipped with a small battery

Of course, one cannot adequately judge a phone from a spreadsheet. You really have to use it for some time to get a real feel for what it can do. Even so, the “Crackberry” addicts even take issue with it. If your own fan base can’t support you, you have a problem. Here is a review from the Boy Genius website. Go to the site and peruse the comments to get a feel of the Blackberry owners perspective.

The Blackberry tablet is, at this time, still vaporware. Although it does appear to have some strong technical advantages, RIM management has shown that they have yet to grasp the inner workings of the current mobile computing paradigm shift, and they are losing massive amounts of market share as they attempt to learn. I am not optimistic on their being able to right the RIM ship before either Android or iOS become a de facto standard. Again, let's reference output from the professional/institutional subscriber Smartphone Market Model:

Subscribers should look into re-entering bearish positions in this company. As long as prudent money management was employed, material profits were available from the last short position assuming it was entered at the time the original bearish BoomBustBlog research and opinion was released. Entry points can be gleaned from the post The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download and the actual professional/institutional subscriber model included therein...

The model is written in Excel 2007 and is an abbreviated version of the model that we built for RIMM in house. It has 9 tabs, all of which are listed below except for the first tab which is my contact information. Upon opening the model, you should click the “Assumptions” tab and populate the green cells with the red fonts with the assumptions of  your choice. Feel free to use data and trends from our Smart Phone Market Model to ensure you have the benefit of the clearly delineated historical and current trends. The current model will be replaced with an updated, refreshed version available online within 7 days. Click any graphic to enlarge.

RIM Model Assumptions

 

RIM Model Factors Driving Growth

After populating the assumptions tab, jump to the “Factors Driving Growth” tab and choose the player whose market share and penetration data you want to populate the valuation model for the sake of comparison. The choices are “Nokia”, “RIMM”, “Apple”, “HTC” and “Others”. This tab is annual data only.

 

RIM Model Quarterly Factors (driving growth)

On the next tab, you can do the same as the previous (this tab is quarterly growth). Each of the growth tabs has charts that are print and presentation quality. Just be sure to tell everyone where you got thesis, data and analysis from :-) .

Other tabs in the model…

RIM Model Income Statement

 

RIM Model Device Market Analysis

 

RIM Model Revenue Analysis

 

RIM Model Device Revenues

 

Valuation and Multivariate Scenario Output

Final output is RIMM’s valuation using our analytics and your assumptions as input in the assumption tab above, as well as a multivariate scenario analysis showing changes in quite a number of variables (assuming all others remain the same) and their effects on your base valuation, as well as the percentage upside/downside from the current price.

I personally see a clear leader in mobile computing becoming visible in 2012. Using options, a minimum of 2012 expiration OTM and ATM contracts can be purchase at the most optimistic break points demarcated by the model above after being populated with assumptions you feel most valid. I will have a proprietary BoomBustBlog option model available for download to paying subscribers by the end of next week, at which time we will revisit the analysis above.

Reggie Middleton on Research in Motion

  1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
  2. After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
  3. RIM Smart Phone Market Share, RIP?
  4. Android is gaining preference as the long-term choice of application developers
  5. RIM Smart Phone Market Share, RIP?
  6. The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download

The following are subscriber downloads and illustrations. Please click here to subscribe or to upgrade your subscription.

Last modified on Thursday, 20 January 2011 14:16

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