Research In Motion Limited (RIMM, Financial) has shown very positive market performance in the last few months and this surge in its share price can be directly attributed to the anticipation surrounding the launch of BB10, which is due in a few days. RIM stock has surged 184% since September 2012n and it has breached its 52-week high. Currently RIM’s shares are being traded within the range of $17.71 and $18.24, while the 52 week range of the stock is between $6.22 and $18.32. At this point, there are mixed opinions regarding the future of RIM’s stock. The continuous rise in its stock price has been overwhelming but with the BB10 launch date just around the corner, there is some uncertainty regarding the continuation of this trend. The following chart represents the trend of RIM’s share price over the past year.
The rise in share price after September 2012 can be clearly observed from the chart. The rise was slow at the start but with the rise in anticipation surrounding BB10, the share price surged rapidly.
Analyst Opinions
According to the analysts at Citigroup, the rise in RIM’s stock near the launch of the new operating system is merely a short-lived hype and investors should refrain from buying its shares based merely on the rise in price. Citigroup analyst, Jim Suva wrote, “We are also not surprised by recent carrier announcements to support the new BB10 devices. We remind investors that carrier support is naturally expected given minimal risk on part of the carriers to support these devices. While we acknowledge sentiment to improve as launch date nears and carriers announce support, we remind investors that actual sell through matters to determine the true financial impact that the new OS and hardware will have on the company’s financials, especially in an increasingly competitive environment.”
In my opinion, Suva’s perspective is completely valid. The decision for investment cannot be based merely on anticipation, but there needs to be a valid financial backing to the decision. There is no concrete indication that RIM’s share price will revert back in the near future, but there is also no evidence that indicates that the share price will continue on the positive track. The real impact of BB10 can only be assessed when the actual financial figures arrive, i.e. after the new devices are available to the buyers and after there is an actual rise in RIM’s revenue and profit.
On the other hand, analyst at RBC Capital Markets, Mark Sue anticipates that RIM will sell around 10 million units of its BB10 smartphones in the calendar year 2013. Sue also raised the stock’s target price from $11 to $19. However, Sue said, “While sentiment on RIM is positive at the moment, things can quickly reverse if sell-through data is not favorable or if returns are high.” Thus, the analysts who are fairly optimistic regarding RIM’s future are not ignoring the possibility of the reversal of share price in the case of lower-than-expected sales.
Competition Surrounding RIM
Another factor that dampens the possibility of the continuous rise in RIM’s market performance is the competition surrounding the company. There is extensive competition in the smartphone market all around the globe and it is still increasing. There are a number of Chinese smartphone manufacturers that are capturing commendable market shares, and in such a scenario, it will be harder for RIM to make a major mark. The major players in the smartphone market are Apple (AAPL, Financial) and Google (GOOG, Financial). RIM has lost a significant proportion of its market share to Apple and Google over the past four years. Apple’s iPhone and smartphones running on Google’s Android operating system hold the largest market shares, and the introduction of BB10 may not have as significant an effect on the market as is required to justify the surge in its share price.
However, saying that the launch of BB10 will have no influence on RIM’s financial and market performance will be overly pessimistic. The early reviews of the new operating system have been very positive, and RIM has around five new devices in the pipeline ready to be launched in the next year. These factors will allow RIM to expand its market share and increase its overall revenue; however, in the presence of Apple and Google, RIM may face a hard time in accomplishing this goal.
Thus, after the analysis of the relevant factors, investors should hold their investments in RIM. At this point, the price is inflated and buying the shares may not be a favorable decision.
The rise in share price after September 2012 can be clearly observed from the chart. The rise was slow at the start but with the rise in anticipation surrounding BB10, the share price surged rapidly.
Analyst Opinions
According to the analysts at Citigroup, the rise in RIM’s stock near the launch of the new operating system is merely a short-lived hype and investors should refrain from buying its shares based merely on the rise in price. Citigroup analyst, Jim Suva wrote, “We are also not surprised by recent carrier announcements to support the new BB10 devices. We remind investors that carrier support is naturally expected given minimal risk on part of the carriers to support these devices. While we acknowledge sentiment to improve as launch date nears and carriers announce support, we remind investors that actual sell through matters to determine the true financial impact that the new OS and hardware will have on the company’s financials, especially in an increasingly competitive environment.”
In my opinion, Suva’s perspective is completely valid. The decision for investment cannot be based merely on anticipation, but there needs to be a valid financial backing to the decision. There is no concrete indication that RIM’s share price will revert back in the near future, but there is also no evidence that indicates that the share price will continue on the positive track. The real impact of BB10 can only be assessed when the actual financial figures arrive, i.e. after the new devices are available to the buyers and after there is an actual rise in RIM’s revenue and profit.
On the other hand, analyst at RBC Capital Markets, Mark Sue anticipates that RIM will sell around 10 million units of its BB10 smartphones in the calendar year 2013. Sue also raised the stock’s target price from $11 to $19. However, Sue said, “While sentiment on RIM is positive at the moment, things can quickly reverse if sell-through data is not favorable or if returns are high.” Thus, the analysts who are fairly optimistic regarding RIM’s future are not ignoring the possibility of the reversal of share price in the case of lower-than-expected sales.
Competition Surrounding RIM
Another factor that dampens the possibility of the continuous rise in RIM’s market performance is the competition surrounding the company. There is extensive competition in the smartphone market all around the globe and it is still increasing. There are a number of Chinese smartphone manufacturers that are capturing commendable market shares, and in such a scenario, it will be harder for RIM to make a major mark. The major players in the smartphone market are Apple (AAPL, Financial) and Google (GOOG, Financial). RIM has lost a significant proportion of its market share to Apple and Google over the past four years. Apple’s iPhone and smartphones running on Google’s Android operating system hold the largest market shares, and the introduction of BB10 may not have as significant an effect on the market as is required to justify the surge in its share price.
However, saying that the launch of BB10 will have no influence on RIM’s financial and market performance will be overly pessimistic. The early reviews of the new operating system have been very positive, and RIM has around five new devices in the pipeline ready to be launched in the next year. These factors will allow RIM to expand its market share and increase its overall revenue; however, in the presence of Apple and Google, RIM may face a hard time in accomplishing this goal.
Thus, after the analysis of the relevant factors, investors should hold their investments in RIM. At this point, the price is inflated and buying the shares may not be a favorable decision.
