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.crazylegs..
103 Comments
Five Reasons RIMM Will Continue to Fall
1. Why is Price to Sales the only metric you care about? Do earnings matter?
2. When you calculate price to sales, why do you ONLY include handsets and not SERVICE REVENUE?
Answers:
1. YES
2. Because your total lack of understanding limits you. So you say that RIM (not RIMM, that's the ticker, not the name of the company) could sell 100 million handsets in a few years. If that was the case, assuming the usual 50/50 split between upgrades and new subs, then 50 million new subs would be added. At ARPU of just half current ARPU of $7 (from service fees, Matt) or $3.5 per month, per sub, equals $2.1B annual revenue from JUST service fees at 80% margins, 30% taxes, that alone equals over $1 billion after tax profits, which you could easily place a 20 multiple on. And the user base would have grown dramatically if they got to those number. So you would have to add device sales PLUS service fees for existing customers and OBVIOUSLY the value of this enterprise will be far greater than your ridiculously inane target value.
Five Reasons RIMM Will Continue to Fall
Five Reasons RIMM Will Continue to Fall
RIMM: The Cheapest Growth Stock?
Five Reasons RIMM Will Continue to Fall
You are missing a HUGE point that the service revenue, which carries 80% margins, is currently at an annual run rate of $1.3B, and that number is increasing as they sell more devices. Even if I buy your ridiculous assumptions, you haven't included a nickel of valuation for that high margin, recurring revenue stream.
The carrier argument is simply wrong. Carriers love Blackberry. Why? Value added subs. And the best part is that you don't have to step up to the full blown unlimited data package with the BB if the carrier offers a cheap (or pre-paid) email plan. There is huge demand elasticity in data as carriers seek to get more out of existing subs and RIM is uniquely positioned to drive this. Please look at economic incentive schemes before posting this dribble. Did I mention that RIM compresses all the data as well - yet another incentive for carriers to have BBs on their network. Just ask ATT about the $1B they have to spend because iPhones are using so much capacity (because they are such great internet devices).
This article is poorly though out using the wrong valuation assumptions. How can you simply ignore the service fees. At least tell us they are going away. Weak. Just weak.
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"The company boasted revenue of $9.6 billion and a net profit of $1.58 billion, compared to revenue of $7.1 billion and a net profit of $1 billion in the third quarter of 2007. But its second quarter results were down ($7.51 billion in posted revenue and $1.05 billion in net profit) from the first quarter. Some people think this downtick signals the beginning of an unfortunate trend-line … or worse."
It seems difficult to take this article seriously. Isn't the first quarter the holiday selling season? And the second quarter is Jan 1 - Mar 31? Does the author just totally dismiss this?
No doubt with greater volumes comes more glitches, but overall, in terms of quality can one realistically say that Apple products exhibit significant issues and they are rotten to the core? That's a huge stretch. Puffy piece here.
Research In Motion's Blackberry Bold Launch Should Calm Investors
carriers could never do with iphone what they are doing with blackberry - offering cheap data/email plans. why? because iphone has such a great browser. the owners use them so much that they eat up network capacity/bandwidth. so they'll have to keep the price of data high to justify necessary upgrades over time. RIM compresses all data through their network so the data intensity/bandwidth usage is much lower.
RIM gives the carrier greater incentive to offer their product because 1. they subsidize them less (i.e. lose less money on the handset = quicker time to profitable sub) and 2. they get a high value customer (data upsell) that respects the use of the network.
the average person doesn't understand this, but the carriers sure do, and in time, you'll see more cheap and/or pre-pay bb plans that drive huge amounts of adoption.
Research In Motion's 3G Counteroffensive: The Smartphone Arms Race Escalates
You all are accurate in believing how wonderful the iPhone is. It is. Truly an awesome device. A great platform that will develop and get better and better. I love my iPhone.
BUT, you need to understand economics to see why RIM has an advantage to take huge amounts of market share from Motorola, Samsung, and Nokia even when iPhone is exploding.
There is HUGE demand elasticity in data pricing. All you guys here simply accept whatever the monthly data charge is and pay it happily to have the iPhone. But the vast majority of people are very price sensitive and may not want to pay the full $30/month for data services. However, they might pay $10/month extra to have a great email service. This is where RIM comes in and is uniquely positioned to expand. They are actively working with carriers to offer flexible data pricing plans for BBs. This drives huge adoption in every carrier they have done this.
Apple could never do this. Why? The posters above say it all - they are addicted to the iPhone and use huge amounts of data/bandwidth. In fact, I wouldn't be surprised to see AT&T try to tier the iPhone data plans because of this.
So, on one hand you get an iPhone sub that costs you more money upfront (larger subsidy) and taxes your network but offers a great experience and on the other hand the BB offers you a high value customer (typically higher ARPU) but respects the network's bandwidth due to the BB architecture which compresses all data.
Economics usually end up winning out, so before you guys call it game over for RIM, you might want to delve deeper into some of these issues that affect actual end user sales AND incentives that carriers have to sell one product vs another.
Oh, did I tell you I love my iPhone? I did, but interestingly enough, I USE my Blackberry because it does everything I need it to do very efficiently. Funny how personal choice affects end use as well.
Disclosure: Long AAPL & RIMM
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Despite Drop, RIMM's Valuation Still Too High
1. High expectations: 14% sequential growth is HUGE (that would mean 68% annual growth if that continued each quarter for a year). It's priced at a discount to its growth and the opportunity ahead of them is gigantic.
2. Food companies? Yeah, that's a fair comparison.
3. Transparency? How about the 6K that I read. You know, the one they file with the SEC after each quarter.
4. Pitfalls? Finance represents about 13% of the company's users and that is falling each quarter. Not a large impact. And if you think any bank will adopt the activesync protocol and accept incoming pings from devices (which requires opening their firewalls), you aren't paying attention. Patent fights are part of the business and always present a risk to any company.
I can't say whether the stock might be down "20%" in the near future, but you simply can't ignore the fundamental opportunity ahead as mobile phone users adopt "smarter", connected platform devices. Combine that with RIM's push to have carriers offer low cost BB plans, and you'll see how the economic principle of elasticity of demand for data services propels the company's revenues and earnings significantly higher over the coming years.
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2. AAPL EPS means little. Show me the cash! They have generated $6 per share of cash in the first 3 quarters and will generate at least another $1 to $1.50 per share in cash in Q4. With $23 per share cash on the balance sheet, it trades at about 18x 2008 cash flow net of cash - and you are paying for that figure for the year ending in 2 months! It gets even cheaper if you look at 2009.
3. RIMM might appear most over valued but it has the best growth potential. iPhone is serving to HELP them in a big way by bringing tons of attention to the smart phone space. Seems strange, but the reason for this is simply price of data. They will ride the demand elasticity curve for data services as they continue to work with carriers to offer lower data plans (tmobile $10 BB plan?, pre-pay BB plans?) The company has said they see huge volume increases anywhere they get the carrier to lower data pricing. Demand elasticity is huge for data services - and they are the only handset maker who is in a position to work with carriers to lower data prices as RIM offers a compelling service with their email system. Combine that with cheaper handset prices (cheap flip, curve update coming) and you shouldn't be focused on whether the Bold or Thunder competes with the iPhone, but you should watch home many folks buy the BB flip (aka Kickstart) instead of that cheap LG, samsung, or moto when combined with a low priced email plan because the customer gets a great service for a small incremental fee.