Research In Motion's future may not be bought on BB10 alone, a new Jeffries report points to the growing importance of software development for the firm's future.
Research In Motion Limited (USA) (NASDAQ:RIMM) (TSE:RIM) is set to launch its next generation line of smartphone running on BB10 at the end of this month. The upcoming release has propelled the company’s stock above $14, a level not seen since last May.
A report from Jefferies Research puts a twelve month target of $19.50 on the stock, and makes some interesting speculations about where that value might come from. The firm’s previous price target for the company was just $13.
The report makes an assertion that Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) will offer its propriety email service on the iPhone, and on Android systems. The software, long judged as one of the firm’s major strengths, could be licensed to other ecosystems, that could be just as important for the firm’s future as the launch of BB10.
The analyst who authored the report, Peter Misek, says the effects of the move are unknown at this point, but they could be very important for the company’s future. Misek believes that the move is an especially important one for investors to take note of in the run up to the launch of the firm’s own smart phone range.
Though fans of the company may not like to admit it, there is a solid chance that BB10 will fail to make any headway. Misek calls the licensing of Blackberry services to other smart phone ecosystems a “wild card” which could shake the generally accepted bet investors are making on the company.
When buying Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) today, investors are, in general, making a bet on whether or not the company’s smart phone range will succeed, though there are many simply betting that the firm’s stock will rise in the run up to that launch. If the firm has a back up strategy, then there will be a baseline for it to revert to. January 30 may no longer be a pass/fail exercise for the company.
This is probably most significant to the unknown numbers of investors shorting the company, and betting that the smart phone launch will be a failure. Short interest has been rising steadily, making those bets expensive. If Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) creates a plausible case that it could make a transition into the role of a high end software developer, short bets could be in trouble.
Apart from the interesting perspective on Research In Motion Limited as a software firm, the firm is very optimistic about the BB10 launch. The firm’s checks on orders showed that major carriers have made commitments for the first two quarters of 2013. Those commitments have risen from 500,000 in December to between one and two million.
The analyst also predicts that the effect the company’s new products will have on its current subscriber base will be limited, because many of the current subscribers are in developing countries where upgrades happen less frequently.
The conclusion is that, despite huge risks, Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) should outperform current sales expectations for BB10, at least in the first two quarters of the new year. The firm’s fate beyond that is unclear, but it is strengthened by diversifying into software.