Research In Motion Limited (USA) (NASDAQ:RIMM) (TSE:RIM) shares are surging this morning ahead of BB10 unveiling. US markets are closed, but the Toronto Exchange is open. At the time of this writing RIM is up over 8.5%. Besides the excitement over BB10, the rally is being fuelled due to a new report from Jefferies. Analysts at the firm have raised the price target on the company from $13 to $19.50 a share, and from a neutral rating to a buy.
Jefferies states that RIM will enable Blackberry email on iPhones and Android devices. This change is unknown or not well understood. In the future RIM may add BYOD sandboxing and BBM on Android and iOS. So investors can win in the following ways: RIM creates a successful software business on top of Android/ iOS; expectations that are too low and a very high short interest, which could start a squeeze. The wild card is licensing deals or other items. Additionally, RIM has a few other things going for it.
Carrier volume commitments, higher build plans, and better developer support.
1) Jefferies channel checks indicate that the carriers have agreed to volume commitments for the first two quarters post-launch. 2) The checks indicate that BB10 builds have been raised from 500K/month in early Dec to 1M-2M/month. 3) Developers are supporting BB10 more than most expected. RIM is targeting 70K BB10 apps available at launch. Just this past weekend RIM held a “Port-A-Thon” contest that yielded 15K ported apps. Incentives from RIM for the port start at $100 per app.
Initial 4M per quarter in BB10 sales not a high hurdle.
Jefferies estimates that 20M-30M of Research In Motion Limited (USA) (NASDAQ:RIMM) (TSE:RIM)'s installed base is in developed markets, which could afford the device. While RIM has lost a huge amount of momentum and share, the core installed base has been starved for a legitimate upgrade opportunity. The analysts think that investors will look through the risk to the Feb Q St ests (JEF $2.5B/$(0.42) vs. Street $2.9B/$(0.31)) and to the potential upside in May (JEF $4.2B/$0.33 vs. St $3.1B/$(0.14)) and Aug (JEF $4.1B/$0.32 vs. St $3.0B/$(0.11)).
Subscriber base more insulated from BB10 upgrades than feared
The stock fell in Dec when Research In Motion Limited (USA) (NASDAQ:RIMM) (TSE:RIM) implied that many BB10 consumer subs would no longer generate service revenues. While a bit of a double-edged sword as it limits the BB10 TAM, RIM's sub base is skewed toward emerging markets with extended replacement rates, which should push out the impact of RIM's business model shift toward that of a typical handset OEM.