Actually I’ve been long Research In Motion for a few weeks now, I started writing this post at the time but forgot to publish it until tonight when somebody commented on my earlier “Ultimate Buy Signal for RIM?” post.
Since that post I have been happy to see that there is still no mainstream optimism for RIM and their imminent demise is pretty well a forgone conclusion. There are people who think RIM is going to zero.
The flaw in this logic is that it simply ignores the fundamentals that the company enjoys. When times get tough (either macro, like a recession) or micro – in an individual company, what spells the difference between survival and doom is the debt. The companies who are over-extended, who have too much leverage, too much debt find their revenues down, hemorrhaging cash and they can’t service their debt - if they can’t restructure it then it’s game over.
How does this apply to Research In Motion? It doesn’t! The company has zero debt, they have about a billion and a half in cash and their market cap is currently only 3.5B. The estimates on the patent portfolio range from 1.5B to 2B and their tangible book value (property plants and equipment, etc) is somewhere in the $5 to $6/share range.
It is looking from here like even if RIM fails to turn around the company, they will be acquired or liquidated for somewhere north of $9/share (there is a good, and fairly recent, breakdown of their enterprise value and book values here)
On the other hand, the BB10 may do better than is generally expected, their international and government business segments are still strong.
There is also their QNX operating system which they acquired by purchasing QNX. What I found interesting about this is the fact that QNX is the embedded o/s of choice for cars. Did you know that QNX is the in-vehicle computer system in over 30 million cars? Next year RIM will ship QNX in another 10 million cars, that’s roughly 1/3 the number of iPhones that will ship.
What it comes down to is that RIM is currently priced as though there’s no hope and it’s in a death spiral headed for zero. But given the assets RIM has, the cashflows and lack of debt, I don’t see it happening.
Remember folks, this is value investing 101 – we want to buy this stuff when nobody will touch it and sell it when people will trade their mothers for it. At these prices RIM looks compelling.