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Thursday, February 21, 2008

Research In Motion (RIMM) In Motion

The company guides up subscriber additions but leaves revenues and EPS expectations unchanged -- so expect them to beat revenue and EPS expectations when they get around to reporting in March.

At some point in the next quarter or two, RIMM will release Blackberry OS 4.5 for the 8xxx series and I think it will be a meaningful upgrade as it will allow streaming media and the ability to shoot movies on their camera-equipped phones. Their consumer business is just beginning. Last quarter it was 34% of the overall subscriber base. Expect that percentage of business to grow rapidly.

I worry there could be some backup in the financial vertical over the coming months but if that's happening so far it's mighty well hidden.

Without being alarmist, I did want to point out an odd disclosure from the press release:

The number of net subscriber accounts and net subscriber account additions is
a non-financial metric and should not be relied upon as an indicator of RIM's
financial performance. The number of net subscriber accounts and net
subscriber account additions does not have any standardized meaning prescribed
by U.S. GAAP and may not be comparable to similar metrics presented by other

That's the first time they've used that particular disclaimer.

According to last quarter's press release, subscribers ended Q3 at "approximately 12 million" and this press release says Q4 will be "approximately 14 million". They say they added "15-20% higher" than their guidance of 1.82 million, which implies 2.1-2.2 mil subscribers. So 100-200k subscribers are either disconnecting or lost in rounding. It's totally impossible to draw a conclusion from this. Even if they did lose 200k subscribers, which seems like the worst case scenario, its 1.5% of the base and doesn't seem wildly high for a subscriber business.

Blackberries are damn sticky. I've never been able to get something else... and I've tried every time my contract has come up. No one does email on the cell phone as well. Not even close.

The upside in the current quarter implies further upside to consensus numbers, despite the new disclaimer. It's extremely likely we'll see estimates for '10 start to poke through $5.00. Suddenly RIMM looks incredibly cheap at 22* next year's estimates as of last sale at $110. Earnings estimates for 2009 will be somewhere between $4.00 and $4.25 I would guess -- a more somber 25-27*. They're practically growing at 100% on a y/y basis and this is no start-up. They have mass market appeal and scale. Any concerns about the financial vertical or the consumer spending cycle are trumped. At $200, yes, those are valid concerns. At $110 those concerns wind up being a missed opportunity and a heap of self-flagellation as you watch it go up without you.

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