(Last updated Nov. 21, 2012)
Since RIM announced on October 31st that BlackBerry 10 has entered carrier trials at 50 carriers, its shares rallied 20.82% in 4 trading days. In that time, its shares broke above the US$8 and $9 levels. Since the shares hit its 52-week low of US$6.22 on Sept 24th, they have rallied a whooping 45.82% as of the intra-day high on Nov. 12.
Meanwhile, Apple shares have gone in the opposite direction. Since hitting its 52-week high of US$705.07 on Sept. 21st, they have fallen 23.01% to $542.83 (as of market close on Nov. 12). The shares are in the midst of an ugly downtrend.
Below are 6 reasons why shares of RIMM have far more upside than AAPL right now.
1) BB 10 Is Appealing and Unique; iOS 6 Is Boring and Old
Bloggers, developers and even financial analysts have nothing but praise for the QNX-powered BB 10 after going hands-on with it. First of all, it is different than what is offered by Apple and Android. It takes the user experience that iOS introduced in 2007, and takes it to the next level with Flow and Peek. The user experience is no longer the opening-and-closing of apps that smartphone users experience today.
The BlackBerry Hub enforces RIM’s traditional strength in messaging, by allowing users to receive and send all sorts of messages from just one app (email, BBM, text, Facebook, LinkedIn and Twitter messages).
The dynamic lock-screen is beautiful and convenient. Active Frames (like Live Tiles on WP 8) are visually-stunning and provide useful information. The virtual keyboard’s predictive-text capabilities have saved me time by allowing me to swipe up to use a suggested word instead of typing out each letter. The time-shifting camera has the sex appeal that can attract the average consumer. The browser has the most powerful HTML5 capabilities among all mobile browsers on the market, with a HTML5 Test score of 484. For enterprise users, BlackBerry Balance allows for a convenient and intuitive separation of personal and corporate information.RIM is also keeping many features hidden for now, including BB 10’s native picture filters and a video-editing app. Any positive surprises come launch time will be positive for its shares.
On the other hand, iOS 6 appears stale in comparison. Years of incremental changes since 2007 has left it with rows of boring icons. As a 5-year-old OS, it looks dated next to BB 10.
2) BB 10 Is On Track To Have More Than Enough Apps
A main concern among the general public about BB 10 is the app ecosystem. However, it appears BlackBerry has done everything possible to alleviate the concern. It has provided incredible development tools to developers, including the award-winning Momentics IDE and Cascades UI Framework. The Developer Relations Team has hosted BlackBerry Jam sessions in over 30 cities around the world, seeding over 5,000 Dev Alpha and Dev Alpha B devices to developers. There are also great initiatives like the 10K Developer Commitment (a guarantee for you to earn $10,000 on your app if you can earn the first $1,000 on your own) and the BlackBerry Got Game Port-a-Thon.
The average BlackBerry developer makes more money than on Android and iOS. This is perhaps the most powerful quality that is attracting developers to BB 10. A perfect example is the developer who ported the game Pop Corny from iOS to BlackBerry. He was so impressed with the development tools (and the revenue he got) that he made his next game (called FlyCraft) a PlayBook-exclusive.
BlackBerry has even started helping developers port their PlayBook apps to BB 10. With 27,400 PlayBook apps available as of May 1, 2012 (that number should be far higher now) there should be an abundant quantity of apps when BB 10 launches. Thorsten Heins has even projected that there will be 100,000 BB 10 apps available when the first device launches.
3) Investor Sentiment Is Near Bottom for RIM But Near Peak for Apple
It is clear that sentiment on RIMM hit rock-bottom on Sept. 24, when the shares hit a 52-week low of $6.22. Since then, positive news have improved sentiment, but it is still quite bearish overall. Much of the positive news have not been reported by tech blogs and the media. Even when positive news are reported, they are often written with a significant amount of skepticism. Thus, the shares have significant upside potential, as sentiment continues to improve.
In recent days, CEO Thorsten Heins, CMO Frank Boulben and COO Kristian Tear have conducted several interviews with media outlets including Reuters. The exposure has helped lift RIMM. From now to Jan. 30, we can expect a large amount of media exposure for RIM, as executives seek to increase awareness of BB 10. This is very likely to improve sentiment and boost the share price.
The fact that Apple is the #1 held stock in the world by institutional investors should be a warning. With investment managers nearing the maximum limit in terms of how much AAPL they would hold, they are unlikely to buy more AAPL shares. Thus, this removes a potential catalyst, in which institutional buying would lift AAPL. On the other hand, once AAPL hits some weakness (such as currently) investment managers might sell. This could have a significantly negative impact on the shares, as investment funds rush to sell their AAPL holdings before other asset managers. In fact, this could be part of the reason for AAPL’s recent 20%+ fall from its peak.
4) Consumers Are Tired of Apple’s Product Cycles
I believe customer sentiment around Apple has recently shifted. The Maps app fiasco has shown customers that Apple cares more about its corporate priorities than user experience. Meanwhile, the new Lightning dock shows that Apple will go to any lengths to gouge its customers. The 4th Generation iPad (launched only 7 months after the iPad 3) has shown customers that Apple is willing to shorten its product cycles to force customers to upgrade to its latest product. The result is that people are now leaving Apple, with Ed Conway’s letter to Tim Cook being the perfect example.
Surveys have shown that smartphone users have little loyalty. They simply pursue the newest and flashiest product. Thus, BB 10 should be able to capture many users who leave iOS.
RIM is currently trading below its TBV (tangible book value) of US$12. Incidentally, $12 is the target price that bullish analysts currently have for RIM. However, TBV underestimates RIM’s value, since it excludes intangibles such as patents. As we have seen with Apple’s $1.05 billion lawsuit with Samsung, patents in the mobile industry are very valuable. As of September 1st, RIM valued its patent portfolio at $3.372 billion. Adding in the patent value of $6.435 per share, RIM’s BV (book value) is $18.44. I believe that is the minimum price RIMM should trade at, once sentiment normalizes.
In terms of upside potential, Scotia Capital recently published an upside scenario in FY 2014 of 56.6 million units in shipments, ASP of $390 and EPS of $4.39. Applying a P/E of 10x results in a share price of $43.90.
As a comparison, AAPL is trading at 4.31 times its book value of $125.86.
RIMM currently has a lot of upward momentum, ever since it broke out of its downtrend. A perfect example is today, Nov. 21. This morning, there was news that NTSB (National Transportation Safety Board) is dropping the BlackBerry for the iPhone. Normally, this sort of news would send RIMM down about 2% for the day. However, the shares were actually up 6% at $10.30 (as of 2:36pm). The fact that the shares can continue to rally in the midst of bad news show that there is plenty of momentum.
On the other hand, AAPL appears to be stuck in an ugly downtrend. There are signs of a break-out after the shares dropped to $505.75 on Nov. 16, but it is too early to tell whether or not it is simply a dead-cat bounce.
With RIM having announced on Nov. 12 that the BB 10 launch event will occur on Jan. 30, this removes a large amount of uncertainty. In addition, assuming that RIM ships the first BB 10 devices 1-2 weeks after the announcement, BB 10 shipment will benefit earnings in the quarter ending March 2. Thus, the number of bad RIM earnings ahead would not be the two quarters (ending Dec. 1 and March 2) that the market expects, but only one quarter (ending Dec. 1).
Thus, as discussed above, in the base-case, I expect RIMM to trade at BV of US$18.44, which is 109% higher than its Nov. 12 closing price. The bullish-case is $43.90, an upside of 398%.
Where do you see shares of RIMM and AAPL one year from now? Leave your comment below.