Nealy a year ago today, I told my readers that Research in Motion is looking like a strong short play. It was trading somewhere around $62 then. I have subsequently released several research reports and models illusrating the bear thesis in detail. Keep in mind that the early summer of 2010 saw its fair share of RIMM bulls, and the fact that Research in Motion had very strong accounting earnings blinded many to the obvious trends that have already set in. This combined with the strong Blackberry brand caused many to dismiss, or even worse, ridicule our analysis. Reference an article that I posted on Seeking Alpha, which recieved 87 Comments while the stock was in the $60 range. The article was about RIMM as a short candidate, but becuase the word "Apple" was mentioned it became an Apple lovefest. In addition, most simply refused to accept the bear argument for RIMM. The article made clear that the issues affecting RIM's margins will be the same issue affecting Apple's margins - competition!
Other articles drilling down on RIM's strategic positioning and deterioraring trends that were syndicated to sites such as Seekig Alpha, with one in particular, Review of Research In Motion’s Q2 2011 Earnings Announcement on Mon, Sep 20, 2010 garnering such devotion to the Blackberry brand and RIM that one would not have believed one was perusing an investment site. Feel free to peruse the 34 Comments. Well, RIM has dropped 50% since then. What the commenters on these sites and those who remained long RIM failed to realize was that brands in mobile tech will only go so far considering how rapidly the market is innovating and growing, at the same time compressing marigns. They also fail to understand the business model that Google has innovatively adopted to push Android through vendors and 3rd party distributors as a low cost open source product, yet still derive earnings and value by the boatload. Android is easily the fastest growing, and probably the most advanced mobile OS available, and Google literally benefits from margin compression in the hardware and software space. Not only do they benefit, but they have a literal army of world class hardsware, software and telecomm partners wlling to help them achieve their compressed margin ends. This model will, and has, literally wrecked havoc with integrated vertical models, ex. Blackberry, and very soon Apple. If you think of past as prologue, or even worse fall in love with a brand or company, you will lose sight of the forest due to tree bark...
Research in Motion shares fell sharply Thursday after the company delivered an outlook that was far short of expectations, even as it edged profit forecasts for the most recent quarter.Blackberry.comBlackBerry Bold 9000Shares of RIM plunged more than 16 percent in extended trading following a trading halt that lasted about 40 minutes. Get the last after-hour quote for RIM here.The maker of the BlackBerry line of smart phones said it sees earnings in the current, fiscal second quarter coming in between 75 cents a share and $1.05 a share, and for full-year earnings between $5.25 and $6 a share.Those numbers fall well short of analysts' expectations of $1.40 a share for the fiscal second quarter and $6.29 a share for the full year, according to estimates from Thomson Reuters.Also for the current quarter, RIM sees sales of between $4.2 billion and $4.8 billion, short of the expected $5.46 billion."The guidance was just awful. The devices are receiving less shelf space and less support from carriers," said Peter Misek, managing director at Jefferies & Co.
The company said its gross margins, among the highest in the smartphone industry, will likely slip around 5 percentage points to some 39 percent in the current quarter.
"Fiscal 2012 has gotten off to a challenging start," co-chief executive Jim Balsillie said in the earnings statement. "The slowdown we saw in the first quarter is continuing into Q2, and delays in new product introductions into the very late part of August is leading to a lower than expected outlook in the second quarter."
Balsillie said the company is reducing its headcount but specified that it's a "streamlining" not a restructuring move.
Since RIM has breached our forensice analysis valaution bands, and is now in the area covered by our multivariate model, I will release the "pro" version of the RIMM research for all to see. Now you get to see what subscribers had access to this time last year to drive profits through what was then a contrarian position in RIMM. Click the image below and navigate the pages using the left and right arrows at the edge of each page, 46 pages in total.
Click the thumbnail below and hold your cursor over the resulting image to navigate pages.
From BoomBustBlog's RIM Archives:
I also warned again in April - Blackberries Getting Blacked Out, Imitate Amateur Base Jumpers Sans Parachute! Friday, April 29th, 2011):
On January 20th, I posted "Blackberries Lost More Market Share Than We Bearishly Anticipated While RIMM’s Share Price Spikes: Is It Time To Revisit the Bear Thesis?". I turned bearish on RIM last summer and made some money on its dip back then. Shortly afterward, its shares did the QE thing, despite the fact Android started sucking up market share everywhere while simultaneously squeezing margins like orange juice. As excerpted from the aforementioned post:
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 - RIMM Forensic Analysis and Valuation – Professional & Institutional or 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....
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 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?…
Research in Motion is following the EXACT path we at BoomBustBlog had laid out for it since the 3rd quarter of 2010. Notice the share price announcement since our January 20th pronouncement.
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.
The following are subscriber downloads and illustrations. Please click here to subscribe or to upgrade your subscription.
- RIMM Forensic Analysis and Valuation – Professional & Institutional: a 45 page analysis of RIMM, it’s strengths, weaknesses and prospects and probably the most thorough valuation that I know of concerning this company.
- RIMM Forensic Analysis and Valuation – Retail: a 10 page abridged version for my retail clients, containing all that you need to know including the market scenario valuation analysis (see Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion for more information).
- Smartphone Market Model – Blog Download Version: the interactive smart phone market analysis and penetration model, includes data for HTC, Apple, Nokia and Research in Motion
- RIMM Multivariate Valuation Mode: the big Kahuna, for professional and institutional subscribers only. Please review the following overview of the model.