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RIMM Is Ripe for a Fall

We all know by now that Wall Street analysts are in on the take. Why else would a mere 5% of all stocks covered by the “experts” rate “sell” and the rest warrant a “buy” or “hold” rating?

Well it goes to show you how things must truly be at Research In Motion (NASDAQ:RIMM) that the company achieved one of Wall Street’s rare “sell” ratings on Monday.

This from Toronto’s Globe and Mail:

Canaccord Genuity analyst T. Michael Walkley has become the latest analyst to weigh in on Research In Motion Ltd.’s turnaround prospects with the arrival of its BlackBerry 10 devices — and he’s not optimistic.

Mr. Walkley downgraded RIM today to “sell,” arguing that “fundamentals” do not support the stock’s recent share price appreciation. His price target is $10 (U.S.), which is $2 higher than his previous projection made in June.

Yeah, higher than June. But 13% down from here.

I recently panned RIMM stock, then got called all manner of colorful things in the comments section. I’ll admit that in the short-term I’ve been eating a lot of crow, too, since the stock is up more than 30% in the past 30 days and over 40% in the past 60.

But the long-term prospects of this company remain suspect at best. Risks here include:

Tablet Irrelevance: Remember the PlayBook? Yeah, it sold a mere 130,000 units in Q2 and through September had sold a measly 1.7 million since its launch. That’s vs. 7.5 million tablets running a Google (NASDAQ:GOOG) Android OS and roughly 14 million Apple (NASDAQ:AAPL) iPads. It’s only a matter of time before the BlackBerry dies altogether.

Sentiment, Not Sales or Profits: You have to agree with Walkley’s logic that the fundamentals simply do not support this kind of overheated run-up. RIMM still is handily in the red. It’s still projecting a loss in fiscal 2013 as well as fiscal 2014. What massive improvement in the underlying business has happened? Nothing, obviously … meaning this is a sentiment-driven rally that could evaporate just as quickly as investor whims change. Or put more succinctly by Josh Brown of The Reformed Broker, “This will end abruptly and badly.”

All-or-Nothing Rarely Ends Well: There are big believers in the all-or-nothing BlackBerry 10 launch. The company is bleeding cash and struggling to remain relevant, but I suppose it’s possible they can rise from the ashes with a killer BB10 launch … but Microsoft (NASDAQ:MSFT) is in the same boat and it ain’t going well with Surface or Windows 8, according to initial reports. People love to point to Apple or IBM (NYSE:IBM) as tech companies that pulled themselves away from failure with an innovative new age of ideas … but that’s an awfully tall order and there are far more examples of failed, irrelevant or useless companies that couldn’t make the leap as technology and the competition left them behind. Kodak (PINK:EKDKQ), anyone? Blockbuster? Or perhaps even the more relevant example of Palm?

Anyhow, I was bearish on the stock before, so I’m more bearish now after this pop of short-covering and sentiment-driven buying. But hey, I have been wrong before and will be wrong again. RIMM could prove me wrong and double or even triple in 2013.

And I suppose Microsoft could mount a comeback, too. But I’m not taking that bet.

Related Reading

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing he held a long position in Apple but no other stocks named here.

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Comments
  • http://profile.yahoo.com/N6EBLSQWNHCIFZTWFCPJFUVHBA Marco Grimaldi

    Simply put, you’re an idiot. The VAST majority of banks, financial instituations and analysts put a ‘buy’ rating on RIM. The reason? Because even the worst case scenario shows 25M units sold with an ASP of $400 which would allow RIM to break even and gives a $3 EPS, which works out to a $25-28 share price. That’s 240% interest on your money if you invest right now. So where do these #s come from? Simple, RIM has an 80M user base to work into. 30-35M of those are developed world clients (Canada, U.S., U.K, etc..). Studies show that 60% of those individuals will upgrade to BB10 – some ~19M Users – plus they will continue to generate sales of legacy BB7 Bold devices + a small group that come from iOS, Andriod & Microsoft (Studies also show that iOS has many former BlackBerry users who would return if they get all the multimedia iOS provides with all the security/messaging integrit of BB). So what about that expierence? Well BB10 will have the fastest mobile browser available today, see http://www.html5test.com. It will also have the worlds first time-shift camera, http://www.youtube.com/watch?v=9l25ZmrELzM. You’ll also notice, during your research post-reading this, that BlackBerry 10 devices do not have a home button – that is because you will flow between live applications, with the BlackBerry Hub (integrated social-networking center) working open under the OS at all times. Please see http://www.youtube.com/watch?v=mWwu-U-yk_c for a relatively new walkthrough of BB10, please remember this is a developer device and the OS isn’t finished but it gives you a good idea of it’s ease of use. All said and done, BlackBerry 10 is going to change the mobile computing space entirely, just like RIM did 14 years ago. It’s faster, more fluid and more capable than any other device currently on sale, it’s also FIPS140-2 certified – which makes it secure enough for the FBI and Pres. Barack Obama. It’s microkernal QNX architecture is currently used in over 90% of vehicles on the road, military jets, engineering software and many other mission-critical solutions. It’s also more scalable then iOS, WindowsPhone 8 & even Andriod which ensures you that your purchasing a future proof device. RIM is leading the way for mobile computing, and I am very excited to get a BB10 device of my own and watch as the world goes back to Black.

    • L.P.

      Marco, thanks for the reply. You’ve kind of showed me some facts that had me worried about RIMM. Do you have an email to get in touch with? Let me know you can either reply to me through here or directly on my user name. Thanks, LP

  • Ron from HRM

    Analyst who says that RIM is bleeding cash hasn’t done their homework. They have been increasing cash. And they are increasing subscriber base. And you are qualifying your position that you may be wrong. Just admit that you don’t know anything about how RIM will do. You are speculating. Have you even held a BB10 alpha or beta device in your hands and tried it out? If you haven’t, you are talking about something you haven’t even seen.

  • http://twitter.com/octavio8g Octavio Gil

    On top of all these great posts from Marco, and Ron, the writer of this article did not take into account the national pride investment that Canada has put in RIMM. Yes, the company will break even, yes they have put in alot of cash(which they have had on hand since 12 years ago), but they will persevere. Kodak, had decades to improve and it still relied on old tech, Palm had no cash reserves and was bought out by HP. RIMM has cash reserves and a market as Marco stated, to renew with new products. Bottom line, Toy vs. Tool, you chose.

  • http://profile.yahoo.com/N6EBLSQWNHCIFZTWFCPJFUVHBA Marco Grimaldi

    Team, thank you for all your kind replys. I also want to mention, as I am sure this will be brought up at some point, that RIM will also ensure that BlackBerry 10 is home to a wide breathe of applications – in total, 100,000 applications in BlackBerry World (formally BlackBerry App World) at launch. More importantly, RIM is focusing on having the most downloaded 200-400 applications per region. This focused and streamlined approach ensures two things: 1). Quality of Applications, as opposed to quantity. 2). RIM understands the corelation between applications and OS success. To clarify the reason for the name change, BlackBerry World is now home to Applications, as well as Movies & Music. These features, along with NFC devices that support mobile payment options (i.e. paying with your visa via your smartphone) and fully integrated carrier billing, are going to ensure a clean, sober, organized ownership expierence for each and every BlackBerry person. From a future-proof standpoint, RIM owns a company called QNX as I illustrated before. The day is coming where your smartphone pays for your double shot of espresso at starbucks, than unlocks your secure door into your office, than is placed on a dock, hooked up via HDMI to a monitor and via bluetooth to a Keyboard and Mouse, running your corporate Citrix environment through your smartphone. This is the future, and the future starts on 30 January 2013.

  • http://twitter.com/JeffReevesIP Jeff Reeves

    Sharing personal experiences about consumer technology is vastly different than looking at investor perceptions and the balance sheet. The bottom line is that RIMM is unprofitable. Unless BB10 is a roaring hit, it will never come back. Those who want to hang their hopes on that are free to buy shares. I personally think that after this short covering ends, the bottom will fall out… but I have been wrong before and will continue to be wrong. This is just my opinion based on a look at profits and sales, not personal opinions on the gadget.

  • charlie2010

    Gotta give you credit for at least owning up to being completely wrong about the recent run up.
    Do you seriously expect the worldwide excitement and anticipation to drive the stock down over the next 2 months? Time will tell, for your sake I hope you dont miss another 80% run, it would be hard on the wallet and your credibility.

  • http://www.facebook.com/profile.php?id=507341842 Ryan Lake

    I’d argue buy, but only as a short term play. I bought near the bottom and I am up. I plan to sell sometime before the actual launch. Don’t get me wrong, I love my BB. I can’t fathom owning a phone without a physical keyboard. However, your last point, “All or nothing rarely ends well” hits the nail on the head. It’s too risky to hold beyond the launch. Buy now, the hype, good or bad, will fuel interest and at least a slight bump. Sell before the launch and who cares if BB10 works or not. In 6-9 months after launch I will have another look, until then I will park my cash at McDonald’s on the NYSE as dividends are good, Canadian dollar is strong and they’ve had a few missed quarters that makes their stock a buy. If the Canadian dollar drops, I win. If the stock rises I win. If nothing happens I get my dividend.

  • http://www.facebook.com/Jacasson Lousy Broker

    The latest short interest data shows… that RIMM continued to be shorted into in the price ascent, so it wasn’t short-covering that took the stock price up.

  • BlackBerryForever

    Where is this fall? It’s December 13th and no fall! I think you were talking about AAPL instead? Apple’s falling all the way around!