Thursday, July 07, 2011

RIMM Bull vs. RIMM Bear Discussion from Last December

Here is a lookLink back on an interview I did with the biggest RIMM Bull -- Gus Papageorgiou of Scotia Capital -- from last December. I have been and continue to be a huge RIMM Bear.

The original article appeared in Real Money.

Looking Through a Bull's Eyes

By Eric Jackson
RealMoney Contributor

12/28/2010 7:30 AM EST
Click here for more stories by Eric Jackson

An epic debate has been raging for the last six months between the bulls and the bears on Research In Motion (RIMM - commentary - Trade Now). I am decidedly on the bear side, but I acknowledge that there are good arguments on both sides

The debate is reflected in the variance in price targets on the company. They range from $35 to $130.

The stock is back to $58, after getting up to the low $60s in recent weeks (prior to the most recent earnings release).

That earnings call was unique because it didn't result in an instant 10% (plus or minus) move in the stock. For once, the bulls and bears found equal amounts to chew on in the results and the stock was basically flat -- though it's dropped a few percentage points since then.

I believe that anytime an investor has a strong view on a stock, they should vet it by talking with someone who sees things from the complete opposite perspective.

So, last week, I called George Papageorgiou of Scotia Capital. George is the one who has the $130 price target on Research In Motion. I asked to chat with him, making it clear that I had a short position in the company.

He got back to me right away, willing to talk, which made me like him. What I also like about him is that he's got a bold call. He's not like 85% of analysts who like to stay within 10% to 20% of a stock's price and say nothing controversial. George is letting it ride with $130.

Another positive for George is that this has been a call of his for over a year now for the stock. He's sticking to his guns here.

I asked him to tell me why I and all the other Research In Motion bears are wrong. In bullet points, here's what he said:
  • Earnings and profitability growth: This is a stock trading at 8x trailing earnings and growing earnings 30%.
  • International growth: George doesn't believe Research In Motion gets any credit for Latin America and Southeast Asia. People are paying full price for phones there and opting in huge numbers for unlimited prepaid BBM/Facebook/email packages.
  • There continues to be strength in the enterprise: This isn't changing anytime soon, according to George.
  • Playbook: George believes this tablet will be a winner. It's going to be the first dual core processor on a tablet (making it 2.5x as powerful as the iPad). George actually thinks many users will prefer to use the Playbook as a phone with full Flash support.

George believes that the market will gradually see how low the company's shares are priced by the middle of next year.

Moreover, he thinks that Research In Motion might be able to show the Playbook's QNX operating system running on smartphones by the second quarter of the company's next fiscal year and that the co-CEOs are being conservative in not committing to dates (though they weren't so conservative last September when they pre-announced the Playbook seven months before shipping).

He also believes that Research In Motion got a bad rap for ceasing to report quarterly net additions in subscribers and devices shipped. After all, neither Apple (AAPL - commentary - Trade Now) nor Nokia(NOK - commentary - Trade Now) report such figures, so why should Research In Motion get so much grief? He is right.

George asked me why I thought the company wasn't a buy here (credit to him for asking). My view is that Research In Motion's price-to-earnings multiple is a reflection of market expectations for an international repeat of what happened in North America. He took offense to me characterizing all of North America for slowing when only the U.S. has. "In Canada, RIMM still has 50% share," he reminded me.

But there are basically no decent Android phones (Google (GOOG - commentary - Trade Now)) in Canada, I responded. There is no HTC Evo or Incredible or Motorola (MOT - commentary - Trade Now) Droid. Maybe Research In Motion pulled some strings with the Canadian carriers, but they can't keep good phones out for long.

We will have to see if the other international markets maintain their BlackBerry momentum or if they start to flag. It's clear that, in China, Research In Motion is nowhere, and that's not going to change anytime soon.

All that said, it will take six months to see how successful the Playbook is and how Research In Motion's results play out. I believe they're dead wrong, but I appreciate the views of George and the other Research In Motion bulls.

Eric Jackson had a short position in RIMM and long positions in AAPL and GOOG at the time of publication.

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