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More Thumbs In Motion For RIM

Posted: Feb 25, 2008 07:57 AM by Wayne Pinsent

Tickers in this Article: T, APPL, PALM, RIMM

Research in Motion (Nasdaq:RIMM) expects more subscriber in the coming months than it had previously forecast; this is great news for the coming year, and it helped the stock surge 9% to close at $106.69 on January 21.

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The company based in Ontario, Canada, makes the BlackBerry brand smartphones, which have become an essential product for business professionals. Competition has worried investors, but the numbers for Research in Motion (RIM) show no signs of weakening.

More Subscribers Than Expected
On December 20, 2007, Research in Motion had forecast 1.82 million subscriber additions for its fourth quarter. Just about two months later, on Thursday the company has revised this number up 15-20%! That is a huge increase implying additions of 2.09-2.18 million subscribers. The additions will help to bring RIM's total subscriber base to 14 million by the end of the quarter.

The initial predictions were low because management was expecting a slowdown due to the weak economic factors that did not occur, co-CEO Jim Balsillie said in the press release.

He also said BlackBerry sales were stronger than expected during the holidays, likely led by strong sales of the BlackBerry Curve and Pearl. There are two main takeaways from this back and forth projection:

1) The company is not seeing slowdowns in-line with economic sentiment, and
2) The company is being conservative.

Both are obviously good signs for RIM.

Breaching the Smartphone Stronghold
Worries had arisen in recent years over competition from Palm (Nasdaq:PALM) on the business front, and more recently with the iPhone from Apple (Nasdaq:AAPL) in the consumer market. On the business front, which is RIM's forte, Palm has not really dented the company's growth in any significant way and has become a footnote in the RIM story. The iPhone is slightly more of a concern, since it has been wildly popular since its release, but again RIM is mainly focused on business customers. While RIM is trying to move more towards non-business consumers, there is certainly a big enough base for all three players, especially currently with Apple exclusive contract with AT&T (NYSE:T) for the iPhone.

Neither competitor has had much of an impact, and in the end, RIM's biggest problem may be its own success. Analysts have voiced concern that the company is struggling to keep up with strong demand. The company has to hope that its peers don't scoop up those customers. This is not too big of a concern though: at least it indicates that there is continued strong demand. (For added insight on this dilemma, see Macroeconomic Analysis.)

Conservative Guidance for 2008
The company held revenue and earnings guidance constant, projecting fourth-quarter revenue of $1.80-1.87 billion and diluted earnings per share of 66-70 cents. The medians for these figures are lower than consensus estimates of profit of 69 cents per share and revenue of $1.85 billion.

Management left these estimates unchanged despite the revisions in subscribers, which indicates the company is likely being conservative. I think there is a good chance RIM will exceed expectations for the quarter, and I think the stock looks interesting. I hesitate to recommend a blanket buy with the shares trading around 30-times forward earnings estimates in this environment, but I feel the company still has a lot of long-term growth potential for those who can stomach a little risk.

The Bottom Line
RIM revised subscriber estimates for its fourth quarter helping boost the stock. Competition has not done much to hold down the high flying company's growth, and I think RIM has a lot of demand to soak up worldwide. The company has been conservative with its earnings and revenue estimates, and it may be leaving room for surprise with it reports on April 2.

By Wayne Pinsent

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