Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Ahmed Ishtiaq, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
By Ahmed Ishtiaq
Research In Motion (RIMM) has been through some tough times recently. The dynamics of the smartphone market have changed dramatically over the past three years. Research In Motion was the pioneer in the market; however, its failure to re-engineer itself has proven to be the demise of the company. Lack of innovation and failure to adopt new trends in the market has hurt the company. At the moment, the market is heavily skewed towards Apple (AAPL), Samsung Electronics (SSNLF.PK) and Google Inc (GOOG).
Major players in the smartphone market have worked on innovation and better user experience along with a focus on the enterprise use. As a result, these giants have been able to take a lion's share from the market. On the other hand, companies like RIMM have been left to live on the scraps. RIMM has lost substantial business, and the company is currently going through some testing times. However, there is a ray of hope, everything is not lost yet. The company will soon launch its latest edition of BlackBerry phone, which is expected to change the direction of the company. A lot of investors are hoping that the phone will prove to be a major catalyst for the company. Let's look at the prospects of the success of the new Blackberry phone.
Will BlackBerry 10 Prove to be a hit?
The biggest reason for RIMM to lose market share was the failure to follow the latest trends in the Smartphone market. However, the company has tried to address this issue in the newest phone in the BlackBerry product line. The latest BlackBerry model will offer a collection of applications from across the globe and across all categories. The mobile will have applications including productivity, games, social, multimedia, and published content. Furthermore, the platform has received FIPS 140-2 certification, which caters to government agencies. The certification will enable the agencies to deploy BlackBerry 10 smartphones and BlackBerry Enterprise Service 10, immediately.
The focus for the new phone has been on the user experience. The company has realized that smartphone users want engaging applications and products. As a result, the company expects to provide a unique computing experience to users through BlackBerry 10. Some of the features offered by BlackBerry 10 are BlackBerry Flow, BlackBerry Hub, BlackBerry Keyboard and BlackBerry Balance. BlackBerry Flow allows navigation across open applications and the BlackBerry hub, where all messages, notifications, feeds, and calendar events pass through. The BlackBerry Keyboard helps users type faster and more accurately. The feature learns from the user's writing and adapts according to the user's needs. BlackBerry Balance helps users keep personal apps separate from work data. Switching between personal apps and the work data can be done with a simple gesture.
The above mentioned features along with a plethora of applications will certainly attract some smartphone enthusiasts. Furthermore, recently leaked pictures of the phone indicate that the phone will have a much larger screen. The design of the phone looks more in line with the trendy smartphones available in the market.
Risky Investment?
No investment comes without a risk; however, RIMM falls in the high risk investments category at the moment. The company has bet its future on one product. If the product does not become a success; it could be curtains for the company. RIMM could be in serious trouble and investors can lose substantial value. However, I believe the risk is worth taking. The company has massively improved the software as well as hardware. RIMM still has a section of smartphone users who are huge admirers of its hardware. The company revolutionized the market in early 2000s, and I believe it can again make a big impact in the market. I expect the company to face fierce competition from Apple and Samsung. It will be an enormous challenge for RIMM to wrestle back market share from these two behemoths.
Peer Comparison
The biggest competitors for Research in Motion are Apple Inc, Samsung Electronics and Google Inc. The table below lists some important metrics for comparison.
| | RIMM | AAPL | GOOG | SSNLF.PK |
| P/E | N/A | 11.9 | 22.9 | 14.0 |
| P/B | 0.7 | 4.2 | 3.6 | 1.9 |
| P/S | 0.5 | 3.2 | 5.1 | 1.6 |
| EPS Growth | -12.40% | 69.40% | 30.80% | 21.40% |
| Operating Margin | -10.80% | 35.30% | 27.00% | 13.70% |
| Net Margin | -6.90% | 26.70% | 22.20% | 11.30% |
| ROE TTM | -8.90% | 42.80% | 17.20% | 16.60% |
| Debt to Equity | 0.00 | 0.00 | 0.00 | 0.00 |
Source: Morningstar
RIMM has extremely poor margins at the moment compared to its competitors. The margins clearly outline the current position of the company. However, these margins can improve substantially if BlackBerry 10 proves to be a success.
Summary
A lot will depend on the success of BlackBerry 10 for the company. There are undoubtedly some risks involved; however, I believe RIMM can make a comeback in 2013. The stock can also provide a short-term trading opportunity. The launch of the product can have a positive impact on the price, which may offer short-term gains. However, a comeback by the company in 2013 could yield substantially higher returns in the long-term. January 30 might prove to be one of the most important dates in the history of the company.