Research In Motion (RIMM) stock has suffered a 90-percent market cap deterioration over the last five years. The lowering price of the maker of the once-popular and innovative BlackBerry smartphone enticed some value investors into the stock. The third quarter was no exception.
Most notably, Prem Watsa added his largest share amount of RIMM in the third quarter – 25,006,200 shares – for his lowest price – $7 each, on average. The purchase nearly doubled his holding to 51,854,700 shares, equivalent of 9.89 percent of the company. Since then, the stock has gained about 60 percent.
Watsa initiated his RIMM position in the third quarter of 2010 with more than 2 million shares, for which he paid $50 each on average. His average price paid for each of his quarterly purchases is still 32 percent lower than the Thursday price of $11.55.
Several investors got into the stock as it fell to almost five-year lows in the third quarter. Whitney Tilson bought 70,478 shares, and Andreas Halvorsen bout 4.6 million. They have both experienced a 60-percent gain so far.
Others added to their positions. Donald Yacktman more than doubled position to almost 24.5 million shares, and Jim Simons more than doubled his to almost 17 million shares.
Before the most recent purchase, Yacktman said in a GuruFocus interview that he had kept the position small because “we just don’t have a high level of confidence:”
Yeah, haven't moved. What do you think about the company? You own a position.
Yacktman: Here's the dilemma with it. It has a wide array of outcomes. We felt we had protection, but what happens in a company like this where there's no dividend, the protection is there, it still remains there, but I think people get very nervous about it. I think you have three pieces. You have the cash, you have the patents and you have the embedded base. The real problem is that they've continued to stub themselves in the foot on the new phone, and the concern we've had increasingly about it is that that part then becomes a little bit of an ice cube, particularly the embedded base part which – the other two are pretty clear, and you can clearly there have some worth to sell the patents and the cash obviously, but the embedded base will only stay with you so long if you don't come up with another product that's going to work. They'll switch to Apple or whatever. And this phone better work. They've delayed it what, three or four times now?
Yacktman: You're stretching the patience of your embedded base, and it's scary. That's why we have such a tiny position in it, because we just don't have a high level of confidence. But the same $20 of value that was there when we initially looked at it is pretty much $20 of value. It may be slightly less, or may have started a little bit higher.
RIMM’s new phone is the BlackBerry 10, which the company announced on Nov. 2 will be launched on Jan. 30, 2013 in several countries. It will launch its new platform, the BlackBerry 10, as well as the first two BlackBerry 10 smartphones. The platform has been delayed several times, and was previously set to enter the market at the end of 2012. RIMM announced in its first quarter earnings report that the launch would be postponed until the beginning of 2013.
The delay was due to “the integration of these features and the associated large volume of code into the platform has proven to be more time consuming than anticipated.”
“RIM’s development teams are relentlessly focused on ensuring the quality and reliability of the platform and I will not compromise the product by delivering it before it is ready. I am confident that the first BlackBerry 10 smartphones will provide a ground-breaking next generation smartphone user experience,” RIMM President and CEO Thorsten Heins said in a statement.
RIMM’s new phone launch is critical as most of its decline has resulted from new innovations by aggressive competitors such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG).
One of the company’s strategies to make the phone more competitive is to organize events for developers to learn about developing applications on the new platform, which it has made easier. Lack of application volume was considered a major drawback for the BlackBerry among customers with the choice of iPhone and Android, which have plentiful applications available.
The announcement of the launch date was one of the factors sending shares up about 48% in November. Another contributing development was Goldman Sachs (NYSE:GS) upgrading the stock to buy on Nov. 29, from neutral. The firm is optimistic about the phone’s chances for success.
“We now assess a 30 percent chance of success for BB10 given positive early reviews, broad-based carrier support, attractive features, and interest by carriers and consumers in broadening the field beyond Android/iOS,” Goldman analyst Simona Jankowski wrote in a research note, according to Businessweek.
Despite its loss of U.S. market share, RIMM the business continues to be debt-free, with $4.9 billion in cash on its balance sheet, according to its 10-year financials page. The company also generated $2 billion in free cash flow in fiscal 2012 – its sixth consecutive year of free cash flow production. Book value per share increased from $17.08 in 2011 to $19.27 in 2012, a record high for the company.
In the second quarter of fiscal 2013, the company reported several positive results as well, including: an 80 million global subscriber increase and a 2 percent revenue increase to $2.9 billion from the first quarter.
Compared to the second quarter of fiscal 2012, revenue declined 31% as the number of BlackBerry devices shipped dropped 30%. It also had a net loss of $235 million, or $0.45 per diluted share, and expects to report a loss in the third quarter of 2013.
To see other investors' buys and sells of Research In Motion, see its Guru Trades page here.
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