RIM Is Still Worth $12 As BB10 Nears Launch In January

by Trefis Team
Research in Motion
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In what will be its first public move to revive its flagging fortunes, Research in Motion (NASDAQ:RIMM) announced early last week that it will unveil the new BlackBerry 10 platform at a media event January 30. RIM will hold the event simultaneously in multiple countries around the world and use the opportunity to officially announce the first two BB10 smartphones. This comes on the back of the CEO, Thorsten Heins, confirming in a press release late last month that the BB10 devices are being lab-certified by more than 50 carriers worldwide. With RIM finally seeing some good news flow in the last few weeks, its shares have shot up by almost 15% this month as confidence returned that the management will be able to deliver on its deadline this time after having missed it twice already in the past year.

However, the Q1 2013 launch implies that competitors such as Apple (NASDAQ:AAPL) and Samsung (PINK:SSNLF) will continue to munch on RIM’s market share until then and even beyond as RIM tries to generate positive market sentiment around the new devices. To add to RIM’s woes, competition in the smartphone market is only increasing with Microsoft (NASDAQ:MSFT) making a reinvigorated mobile play with its combined Windows 8/Windows Phone 8 push this holiday season. However, we still see more value in the stock coming from its huge subscriber base and the unique value propositions RIM can make in push email and security. Our price estimate of $12 for RIM’s stock is about 50% ahead of the current market price.

See our complete analysis for RIM stock here

80M Subscriber base provides value

The struggling smartphone maker has seen its BlackBerry unit sales fall y-o-y for the last five consecutive quarters. Last quarter saw RIM ship only 7.4 million BlackBerries, a precipitous drop of 30% y-o-y and about 5% q-o-q. Device revenues for the first half of fiscal year 2013 are already down over 50% over the same period last year. However, despite the revenue drop, RIM continues to add new subscribers every quarter, with many coming from international markets.

RIM currently has over 80 million subscribers globally. With BB nowhere near its peaks of customer appeal, RIM will be primarily looking to get this installed base to upgrade to BB10 initially. At the same time, RIM will bank on the push e-mail and BBM service revenues from existing subscribers to tide over this difficult transition period. CEO Thorsten Heins has said the company is looking to leverage the security strength of BlackBerry services that governments and enterprises around the world have come to rely on.

We believe the BlackBerry services, which include push e-mail and BBM, are unique value propositions for RIM’s customers, and the company is doing the right thing by realigning its focus on this segment. Our estimates show that this is RIM’s most valuable division currently, accounting for almost 45% of our price estimate for the stock.

BBM still relevant in many markets

But a carrier push to reduce fees as well as a loss of more enterprise customers to rival platforms, as the bring your own device (BYOD) movement becomes more popular, could hinder RIM’s strategic moves to boost revenues from the services division. In addition, the new BB10 devices will not be supported by the existing enterprise servers (BES), potentially making the BES 10 upgrade process costlier and complicated, thereby reducing RIM’s chances of pushing BB10 into the enterprise base. (see BES 10 Fragmentation Increases The Risk For RIM)

However, the emerging markets of Asia Pacific, South Africa, Venezuela and Indonesia, where the BB brand has not yet been hit as badly as in the developed markets, could be RIM’s dark horse. These regions continue to see a good number of new subscribers adopt BlackBerries due to the continuing popularity of the BBM service in these markets.

Much still depends on BB10’s reception in the market, and we do not really expect RIM to ever reach the heights it once commanded in the smartphone market. But if RIM does manage to make BB10 a strong smartphone OS, it could still claw its way back into the market and continue to generate cash from its enterprise and retail niche.

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