After Thursday’s news of Research In Motion Limited (USA) (NASDAQ:RIMM) (TSE:RIM) two new smartphones, expectations are rising for the company. On Friday, Jefferies Group, Inc. (NYSE:JEF) followed up with a research note, “Research in Motion (RIM) – Not Just About the Phone” to review the potential changes for the company.


The firm currently has a “Buy” rating and a $19.50 price target. On Friday morning, the stock is trading at $13.20, up 1.77 percent.

Here’s some highlights from the February 1 research.

Key Takeaway

Analysts believe the market is overly focusing on the perceived success/failure of the Z10/Q10 and overlooking Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)’s software opportunities in mobile device management (MDM) and BYOD. After performing a scenario analysis and a DCF-SOTP analysis, analysts conclude that even an enterprise niche-based BBRY — but with bullish services adoption — this stock would be worth $16.

In addition, a successful MDM BYOD business could be another $16 on top.

A U.S. March BB10 launch should not be a surprise.

May Q and Aug Q upside is underappreciated. Analysts expect this March launch and highlighted a likely Feb Q miss vs. consensus (JEF $2.5B/$(0.42) vs. St $2.9B/$(0.31)). In addition, the Street is also too pessimistic in the May Q and estimates $3.2B/$(0.09) vs. JEF $4.2B/$0.33. Analysts do not think the Street is including the high carrier support (e.g., $600 ASP and volume commitments) into estimates (see the Jan. 18 upgrade note: “Upgrade to Buy: Raise Target to $19.50”).

Longer services tail than expected.

As businesses adopt BB10, they will have the option to roll off of BBRY’s legacy services plan but analysts believe they will use BBRY’s higher-ARPU offering rather than its barebones offering. They think ~40 percent of BBRY’s current sub base consists of enterprises/SMB. The scenario analysis assumes 80 percent, 50 percent, or 10 percent of enterprise/SMB accounts continue paying ~$5 ARPU per month as they adopt BB10 handsets.

Software opportunities in mobile device management (MDM) and BYOD to drive value.

Analysts believe only half of the 500 million global corporate email users who are mobile currently have email on their mobile device, but over the next six years, expect this group to grow at a 40 percent CAGR. In addition, BBRY’s mobile device management software (expect to gain BYOD functionality later in 2013) will see a significant ramp up. Supporting devices with the best, most secure, and easiest-to-use mobile solution should enable Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) to transform into an attractive model.

DCF-based SOTP analysis

Should BBRY’s handset does not achieve mass market success but stabilizes at ~30 milion units a year with good adoption of its high-value services, this implies a Hardware + Services valuation of $16. BBRY’s MDM BYOD software business could be worth another $16. Analysts bull/base/bear scenarios point to FY20 EPS of $4.20/$3.72/$1.53.


Based on FY14 estimates, the price target is 0.5x EV/Revs, below HTC Corp (TPE:2498)’s 0.6x but higher than Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s 0.3x.

Risks include BB10 fails; current subscriber base declines more quickly than expected and a lack of interest in OS licensing by other handset OEMs.