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RIMM – Reports better than expected results, but still a sequential slowdown with no new products until Q1 2013.
Revenues, EPS, units, cash flow, and subscribers all better than expected (or feared) this quarter. This have caused a major after hours spike in the shares as short are forced to cover and opportunistic buyers and value buyers reach for shares. We have three questions:
1) Was there a material change in the companies trajectory? No, sequentially unit sales still fell, US continues to decline – which puts enterprise ever more at risk. FCF was still negative, and no new products until Q1 2013. While we somewhat agree with the need to focus on development of a better phone, all their action is at the mid to low end. Developing a high end phone with schedule mid and lower tier phones by next fall seems amazingly strange and likely not to work.
2) Were there any updates regarding new products or revenue opportunities? Not really, one small one relating to licencing. CEO mentioned positive meetings with other CEOs who said meetings are “very productive” and that RIMM needs to remain a “relevant player in the mobile computing world.” Fair enough, EVERYONE wants a third player, but that is just lip service at this point.
3) Is there value in the sum-of-the-parts analysis? subjective based on valuation for service business and IP value, but likely higher than $4b in a takeout – assuming an actual takeout, of course.
Bottom line, we continue to see RIMM as a damaged brand and one that is pushing too hard, too late. They are still fighting the last war – surviving by the scraps left over by Nokia. Lower cost Android and Chinese made phones will hurt their share in Q4 and 2013. The shares may certainly rise on short covering and momentum buying – we recommend avoiding the temptation.
This is just a quick update on where we think the next logical surprise is going to come from regrading Facebook shares…(hint… its mobile and its positive)
Yes, there are lock up issues, yes there are valuation issues… and yes, Barron’s just ran a cover story basically summarizing every bearish bullet point since the IPO roadshow. Shares are down over 9% yesterday and down again today. If there was any materially new information on FB I would not be stepping in with an opinion since it is a dynamic story whose long term outcome is far from a sure thing. However, when you have a 9% move stemming from an article that regurgitates old information – and in fact faces off vs. positive rumors we hear about possibilities in ecommerce, search, and improved ad platforms then you have to look at this as an opportunity…to buy.
The Facebook IPO was a mess, so what. Yes, there was money gained and lost by different folks, but at the end of the day investors need to do their own homework. The sell-off was warranted. There are issues on mobile and desktop and valuation and its status as an ecosystem etc. But as sentiment gradually turned negative during the road show, it is now near 100% negative as shares have fallen over 40% since the opening of trading (Faceplant). That said, sentiment is now overlooking any and all of the revenue opportunities they may have…which are plenty – its just that none are developed yet.
I do see lots of issues with the FB model – the most prevalent of which is the very genesis of the site is for social interaction and information, not products or service related – which prompts the question how do you monetize a 900m person cocktail party? Not as straightforward as a keyword search for iPhones. That said, the FB model does offer unprecedented scale, data, and optionality on ways to monetize that data and scale that no other company has the opportunity to do. Therefore, when the shares broke under $20, it gets interesting.
The next surprise out of FB is likely to be a positive one. Growth in the core market is known. New subscriber rates slowing, ad click through rates terrible, and mobile is an albatross. However, FB finally launched a mobile ad platform, which means we go from zero to some positive number in mobile. Also, FB is actively trying new desktop ad methods. Lastly, they are moving towards an ad network, more targeted ads, ROI studies, and possible search and ecommerce revenue streams. The negatives are known – its the positives that may surprise. Use today as an opportunity to take a long position for at least a trade into a positive announcement.
The Change Investor 