RIM Guides Lower, Stock Sensitive to Market Share Decline
Research in Motion (NASDAQ:RIMM) recently released updated guidance for the year and mentioned that it now expects a shortfall in BlackBerry smartphone sales along with lower average selling price for these smartphones. [1] This goes to show that revenue growth and profitability continue to slow down for RIM, which is trying to compete with Apple (NASDAQ:AAPL), Nokia (NYSE:NOK) and Motorola Mobility (NYSE:MMI) in the smartphone market. After this news, RIM’s stock plunged by more than 10% in the after-market hours trading.
Our $68 price estimate for RIM stock is around 40% above market price, which we maintain under the assumption that in the medium-term RIM will be able to grow Blackberry sales and market share modestly. Below we acknowledge downside risk to this forecast.
A Look at the Revised Guidance
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RIM now expects the smartphone sales to be at the lower end of the range of the 13.5-14.5 million units sold that it guided in March. We expect that RIM will be able to sell around 59 million BlackBerry smartphones in calendar year 2011. By our estimates, this indicates that RIM’s market share will increase slowly to 3.7% in 2011 from 3.2% in 2010 in the global mobile phone market.
However, with lower unit sales guidance, our forecast for 2011 might be aggressive now. Market share is a critical driver for RIM, and a slight change in its market share expectations can cause large declines to our estimate for RIM stock. For example if market share declines by 1 percentage point in 2013, this knocks around 15% off our price estimate.
Similarly, the average selling price is also a sensitive driver, and RIM now expects a shift in the mix of devices shipped towards handsets with lower average selling prices.
Although we forecast an 8% decline in BlackBerry’s smartphone average pricing in 2011 to $283 when compared with 2010, any further declines could create more downside effect to our estimate for RIM stock. We currently forecast average prices to drop to $250 by 2013. To show the sensitivity in this driver, if average prices drop to $200 by 2013, or 20%, this implies a 12% lower price estimate.
If we take these 2 scenarios combined – this would imply around a 30% lower price estimate from the compounded impacts of lower price and units sold. You can modify the slideshow above to test your own forecasts.
See our full analysis and $68 price estimate for RIM
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