Over the last several years, Research in Motion has lost its dominance in the smartphone market. Having just announced a PR event for Jan. 30 at which they will reveal their new phones (there will be both a touch screen and a fixed keyboard version) and their new Blackberry 10 operating system, RIM is hoping for a resurgence.
I see three major reasons why RIM is poised to grow in 2013.
First, RIM's stock has been destroyed over the last four years from its peak of $144 in 2008. Since then it has lost roughly 95.5% of its value hitting a low of about $6.50. Such a huge decline in share price is an immediate sign that this stock warrants a second look in order to see if the sell-off was justified or purely emotional and to tell if there might be an opportunity for the stock to ascend back up to prior levels.
In the case of RIM, I think a sell-off was definitely warranted given how far Blackberry lagged behind competitors like Apple and Google . Whether a sell-off of more than 90% was warranted is not something I want to get into nor does it matter. The important point is that with RIM about ready to launch the Blackberry 10 and a stock price heavily beaten down, there is huge potential for this stock.
Second, back in 2010, RIM had 40% market share, but with the rise of Apple and Google coupled with RIM’s lack of innovation, it now controls a meager 5.3% of the market. Apple and Google have gone from smartphone obscurity, to the two dominant players in the market controlling a combined 86% of the total smartphone market.
With a market share so battered and a product so unappealing, RIM now has one huge advantage coming back into the smartphone market, lower expectations. Apple, due to its enormous success, has a trove of investors who expect it to grow by astronomical amounts every quarter. When that doesn’t happen they get scared and sell, as we have witnessed over the past two months or so.
RIM is starting at the bottom. If it gains a few percentage points of market share, that becomes huge positive news for investors. Sales growth of 40% or 20% or even 10% is great news for RIM. News like that will make the stock price rise.
Third, the market wants the RIM stock price to rise. Investors are just looking for a reason to buy. Over the past month or so the stock is up about 35% from its all-time low on speculation about the upcoming release of Blackberry 10. It now trades at around $8.80
In addition, when the announcement was made that the Blackberry 10 was being tested by phone carriers, the stock rose 10%. What I see are investors who want to believe in RIM and are just looking for a reason to do so.
While RIM has great potential there is definitely a risk to betting on it.
RIM is its own worst enemy. With positive expectations growing leading up to the January press event, the worst thing that could happen for RIM is for Blackberry 10 and their new phones to under impress.
The following are just some of the ways this could happen: if the new touchscreen phone is hard to use, if the operating system is slow, or boring or not intuitive, if business tasks are hard to manage, or if there are too few apps available for the phone.
This last issue is one that has plagued both RIM and Microsoft over the last couple years. Microsoft, like RIM, has struggled in the smartphone market. It controls a measly 2.4% of worldwide market share. Part of the lack of enthusiasm for these two company’s stems from the lack of apps available to users.
Both the Blackberry app store and Microsoft store have about 100,000 apps. This compares to 675,000 Android apps and 700,000 iPhone apps. If Blackberry and Microsoft want to compete they are going to need to have phones with sufficient apps so that it doesn’t diminish a user’s capabilities.
All things considered, I have high expectations for the new Blackberry 10. I think RIM is aware of these potential product pitfalls and will be well prepared when they launch in January. Now is an ideal opportunity to buy into a stock primed for rapid growth in 2013.
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