RIM Bull Yells 'Buy' As Stock Slides On Weak Profit Forecast (RIMM)
"Investors hoping for a pull-back should not wait long," Sanderson said in a note this morning, "This may be the best chance left this year to BUY weakness in the best growth story in large-cap tech." He adds: "RIMM remains a must-own stock for growth managers. We strongly encourage investors take advantage of the pull-back to build or add to positions." His argument:
- RIM's Q2 revenue and subscriber growth forecasts came in strong.
- New products like the Bold, touchscreen Thunder, won't make much of a difference until the November quarter, so they aren't factored into the August quarter guidance RIM gave yesterday.
- RIM's rare periods of heavy investment in the past have all paid back strongly.
- Operating margins should increase in the November quarter as revenue increases.
- RIM is the only company with more than a billion dollars in quarterly revenue that's growing triple-digits year-over-year. (RIM's Q1 revenue jumped 107% y/y.)
All fair points. We think RIM is underplaying -- or worse, underestimating -- how significant a competitor Apple's (AAPL) iPhone 3G will be, especially among consumers, which are increasingly important to RIM. But we also think the smartphone industry is big enough and growing fast enough to support both of them -- likely at the expense of Motorola (MOT), Palm (PALM), Nokia (NOK), etc.
Similar sentiment today from RBC's Mike Abramsky: "With the smartphone market at inflection point and the company best positioned in history, RIM’s plans to materially increase investment are in our view a massively bullish signal, intended to achieve dominant global handset status and aimed at taking share from incumbent vendors." Abramsky thinks the Q1 "investment surprise" could lead to an "upside surprise" in the November and February quarters.
See Also:
RIM Spending Now To Keep Growth Going, Weak Q2 Guidance Will Send Stock Lower Thursday
BlackBerry 'Bold' Launch Delayed? Market Shrugs
Nokia Blindsided By iPhone, BlackBerry -- No 'Credible' Answer
It will have 20 MM total users next quarter versus 10 MM+ at Apple. More importantly, Apple will overtake its consumer numbers and is poised to grow in enterprise starting from SMB, the very segment where RIMM needs numbers for growth.
RIMM's management have never seen failure like Apple has, they've not gone through the painful iteration an OS requires and their channel management incentives are worrisome reflections of this.
Apple is RIMM's biggest problem because it has chosen to differentiate its competitive stance in a way that forces RIMM to invest billions to defend itself. If RIMM can build a phone with an OS to match Apple in 10 months, it should be valued at 200 billion. Software giants like Microsoft and Google, with an order of magnitude more of software engineering talent are trying to get there in a year or more.
Apple spent 5 years on iPhone, building on billions of dollars of Mac OS investment and pain. The hardware was the easy part.
Just look at the reasons Sanderson is giving you to justify his sentiment; I mean him no disrespect but, come on! He's basically saying you shouldn't sell if you believe RIMM's management.
The question is not whether RIMM stock is good to own (it is!) but at what price??? The valuation of RIMM is horrendous and it could not be justified even when it was growing at the clip before current Q.
I will listening to Sanderson and his buddy Kramer when RIMM shares have fallen 25-30%. At that time I will do an analysis to see if iPhone has stolen RIM's thunder in the consumer segment. Also, my check of channel inventory shows RIM may have stuffed the channel to get the high but disappointing results. If BOLD slips and channel can't move current products watch out RIM -- for another downside in next Q!!!! Why buy now at 124 and change if next Q's results will drive it below 100????
Investors get into trouble when blindly listening to analysts such as Sanderson.
How do you figure they stuffed the channel. DSO's look ok, and their are at least phones in the channel, unlike Apple, who will put up an ugly number when they report.
Apple cannot escape the component costs that cost RIM a couple of pennies this quarter.
The valuation of AAPL is every bit as horrendous as RIMM, both stocks could come in 20% on multiple contraction alone.
MacTards have to realize not everyone wants an iPhone. Too much Kool-Aid after a nice run in the stock has Apple fans foaming at the mouth, and their hubris is remarkable.
RIMM will never build a fan base as rabid as Apple's, but they will have higher market share for the foreseeable future.
Tantrum may well be right, but it will take years for his thesis to be proven correct, assuming it is.
We shall see, "Round One" ends by Halloween.
Tantrum always has salient points, and if Apple does not have to advertise as much as RIM they will have an advantage.
But until MacTards begin to poke holes in their own story I will be unable to take them seriously.
Somebody ought to have asked RIMM about this directly at yesterday's call because the most likely cause of a substantial future unit velocity slowdown for RIMM is the combination of a delay in its rollout plans and the launch of iPhone 3G. I find their commitment of additional marketing funds less than transparent.
Apple has its own fair share of execution risks on iPhone 3G, including the non-trivial possibility that it suffers a product recall or a security scandal. However, I get a distinct sense of discomfort from RIMM's management explanations on their increased budgets for operating expenses and other issues. Additional money must be spent on something, they need to come clean on the proportion that will go into channel protection.
Maybe Henry or Dan could follow up.
OK that certainly sounds plausible. I was trying to connect the dots with the info they had shared, but did not get there.
RIM mgmt played it close to vest, and dropped a number on bombs on the spending front. I can see them being coy to some extent, because of competitive issues, but there might be more to it.
It does not necessarily spell doom for RIM, but the multiple is certainly vulnerable. That explanation alone could be worth five points tomorrow...down.
You are the billion dollar commenter. Need a new home? Have I got a blog for U.
thx
KMU
Nothing, NOTHING warrants their current valuation.
RIMM is a short sale's wet dream.
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