Shares of BlackBerry maker Research In Motion (Nasdaq: RIMM) have lost 70% of their value in 2011. That might look like a terrific setup for a huge bounce -- or the beginning of the end. I'm making an "underperform" CAPScall on RIM today. Read on to see why I don't see any value even at these low prices.
The basics
The stock trades for a startlingly low 3.2 times trailing earnings and below book value. By comparison, Motorola Mobility (NYSE: MMI) isn't even profitable but Google (Nasdaq: GOOG) is buying it for about 30 times forward earnings projections and more than twice its book value. Apple (Nasdaq: AAPL), which many analysts present as a paragon of deep and abiding value, can be had for 14 times trailing income and 4.6 times book value.
In short, Research In Motion is priced for absolute disaster. The only way these prices are fair is if you see the BlackBerry platform dying very soon. I don't think that's unfair.
Wall Street voices
Noted stockpicker Laszlo Birinyi doesn't think so. He told CNBC that RIM surely has a future. "It's been beaten down," he said. "It's a brand, it's got fans, and it's got its products." The stock jumped on these rare positive comments.
Bernstein has a less rosy view. The firm just upgraded RIM from sell to hold, noting that shareholder activism might lead to a wholesale management change or even a buyout. But if Bernstein's analysts truly believed in a takeover, you'd think they would have more than a simple hold rating on the stock. The odds for a positive outcome must look pretty slim even to these quasi-bulls.
What's wrong, dear?
So why am I not wearing my rose-tinted lenses and siding with Birinyi? Because this company has already missed the smartphone boat, and co-leaders Lazaridis and Balsillie are too proud to admit defeat. Deep and difficult changes are in order, but they simply won't happen.
The not-so-dynamic duo sits atop what was once a terrific business with a serious moat 10 years ago. Secure business-class communications in your pocket, at a time when the best Palm alternatives looked like Fisher-Price toys? No wonder they called it CrackBerry.
But that was then and this is now. Apple changed the mobile game with the first iPhone, then Google's Android solution piled on. Nowadays, even Microsoft (Nasdaq: MSFT) has a respectable mobile platform (if only Nokia (NYSE: NOK) can figure out how to market it properly), but RIM rests on a bed of rotting laurels.
BlackBerrys don't really have special powers anymore, and RIM is finally admitting as much by presenting management services for iPhones and Androids at long last. The competition caught up, then left the old leaders far behind.
For years, management promised not to go all consumer-grade on its loyal business-class fans. Cameras and music players didn't belong in a serious tool, you know. That tune didn't change until it was far too late. A good hockey player skates to where the puck is. Wayne Gretzky plays where the puck is going to be. Surely huge hockey fan Jim Balsillie understands this important distinction, but he's managing RIM the other way around.
Endgame
All things considered, I wouldn't pay scrap value for BlackBerry phones or for PlayBook tablets that only sell when discounted so far that all profit has evaporated.
As for a takeout play, I just don't see it happening. The buyer would get a decidedly unhip brand with increasingly unremarkable technology. The only thing of any value in this mess anymore is the network management aspect -- which accounts for less than 25% of RIM's business.
I'm afraid that RIM is much, much closer to being the second coming of Palm than the next Apple. Hewlett-Packard (NYSE: HPQ) finally bought that ailing smartphone maker for a pittance, and then basically shut the whole thing down. That sordid fate probably awaits this Canadian competitor as well. This is a small cap waiting to happen, maybe even a dead stock walking. Either way, going long here would hurt.
I'm backing up my doomsday prophecy by giving RIM a red thumb in CAPS. If I'm wrong, you can point at my track record and laugh. I just don't think you'll get a chance to do that.
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