March 29, 2012
After the closing bell today Research in Motion (RIMM) will report earnings, and many are calling this a "make-or-break" call regarding the future of the mobile device company. Will it stage a comeback or will it become a relic of the past?
It's incredibly unfortunate to find Research in Motion in this position because just five years ago, it had a near-monopoly on the business phone market. When I would walk down Wall Street, nine times out of 10, businessmen would have a BlackBerry either strapped to their hip or next to their ear.
The company practically single-handedly created the smartphone market, and its products' tagline of "Sent via BlackBerry" became a status symbol. Soon, everyone from Oprah to Madonna and even President Obama would be confessing their devotion—or addiction—to the company's phones.
No surprise that the word "CrackBerry" was used to describe the addictive nature of RIM's devices, and in 2006 Webster's made "crackberry" its word of the year. As a result of its rabid fans, the company's market share surged quarter after quarter—climbing to 44% of the mobile market as recently as 2009. And the profits it gave investors were spectacular.
In its hey day, my subscribers and I made good money investing in RIMM. I first recommended the stock in March of 2004 in my Emerging Growth newsletter that focuses on finding the companies that will become the next blue chip stocks, and we snapped up a 50% gain in about 11 months.
I next recommended RIMM twice in my longer-term Blue Chip Growth service–first in 2005 when we locked in 40% gains, and again in 2007 for another 30% profit.
After that we never went back. Why?
Because something big happened—the iPhone.
In his introduction of the iPhone, Steve Jobs claimed that "every once in a while, a revolutionary product comes along that changes everything." And he was absolutely right. As competition heated up from Apple (AAPL) and later smartphones using Google (GOOG)'s Android operating system, BlackBerry's market share plummeted to the single digits.
One of the main reasons that the iPhone and Android smartphones have been so popular is because it's all about the apps. And quite simply, Research in Motion failed miserably on this front.
But competition and a lack of apps weren't RIMM's only problems. The company faced a steady stream of disasters of its own making, including an executive exodus, a four-day global outage of email and BlackBerry messenger services last year, a new CEO that Wall Street hasn't taken to, and one of the biggest product flops ever last year resulting in a $500 million write-off for the company's PlayBook tablet.
By the end of 2011, the company was trading below book value—which means that it was worth more if it was broken up and sold for cash than it was as a whole company.
Given a recent survey found that more than 30% of BlackBerry users in large enterprises—businesses with more than 10,000 employees—plan to migrate to a different platform within the next year, largely due to user dissatisfaction, I don't expect the bleeding for Research in Motion to slow anytime soon.
And we're going to get more evidence of the decline of Research in Motion in a few hours. The company reports earnings after the close today, and I expect the company to live up to its recent moniker of "one of the worst-positioned companies in the tech sector."
Take a look at these numbers to see why. The company has already announced that it expects…
This is not an encouraging preview of what's to come, and the analysts are taking notice.
Currently, only one broker has a buy rating on RIMM shares, 14 analysts rank the stock as a sell, and the remaining 35 maintain neutral calls. And just this morning another analyst announced a last-minute reduction in the earnings estimate from $0.82 to $0.80—a very bad sign to say the least.
I've done my own analysis on the stock, which you can see when you plug RIMM in to my free stock-rating tool, Portfolio Grader.
You'll see that I've rated the stock as an F for the past six months. The highest it's been in the last year has been a D.
And in that time period, RIMM shares have fallen 75%.
During Research in Motion's call today, they are sure to mention the new BlackBerry 10 product, which is expected to be released in the fall.
But to get folks talking, the company plans to release as many as 2,000 working prototypes at its conference in May in order to hype up developer interest—a new face for the company that has traditionally not put much emphasis on helping third-party developers create applications for its software.
But the company has a tough road ahead.
According to a recent report, developer interest for the BlackBerry plunged from its already-low 20.7% in the fourth quarter last year to 15.5% in the first quarter of 2012. Compare that to the 88% and 79% interest in developing for the iPhone and Android operating system.
Although the company continues to have relatively robust sales in emerging markets, the North American market is what RIM counts on for the majority of its revenue—so clearly the BlackBerry 10 is the company's "Hail Mary" promise to both businesses and consumers that it is still relevant in today's dynamic smartphone market.
Don't fall for this trick. Shareholders who have been banking on a comeback to recoup their losses are going to call this a breakthrough and reason to be optimistic about the stock. I hate to say it, but RIP RIMM.
There are plenty of ways—very lucrative ways at that—to play the growth of the smartphone market outside of RIMM. As I mentioned, the no-brainer is Apple (AAPL), still one of my favorite blue chip stocks. But there's also a number of smaller suppliers that are riding on Apple's and even the Android market's coat-tails.
My Emerging Growth service has identified a number of ways to safely and profitably play the smartphone and tablet revolution—from the chip makers and data managers to nanotech developers and accessories makers, we cover it all. And each of these companies is set for another stunning earnings season that will deliver our next round of profits. Don't miss out for another day.
I'll be in touch with more important earnings news through my Market 360 emails and right here on NavellierGrowth.com.
Special Update: 4:52 p.m. ET
RIMM shares were halted in after-hours trading. There are few details, but it appears that shares will resume trading tomorrow after earnings have been announced. Given all the speculation and short interest with the stock, this could be a plus for RIMM management.
I'll be in touch with any additional breaking news.
Special Update: 5:05 p.m. ET
Well, the news is in, and it isn't good. RIMM missed on both revenue and earnings and several key executives are leaving the company. The stock should resume after-hours trading in a few minutes. Full press release can be found here: http://www.marketwire.com/press-release/research-in-motion-reports-year-end-and-fourth-quarter-results-for-fiscal-2012-nasdaq-rimm-1638090.htm
Special Update: 5:11 p.m. ET
More bad news for RIMM from Nielsen: Among recent smartphone purchasers within the last three months, 48% went for Android, 43% for an iPhone–only 5% chose a BlackBerry. More details: http://blog.nielsen.com/nielsenwire/online_mobile/smartphones-account-for-half-of-all-mobile-phones-dominate-new-phone-purchases-in-the-us