Wireless industry analysts agree that Waterloo, Ont.-based Research In Motion is one of the leading players in the emerging market for wireless handheld devices, a market that includes handheld veteran Palm Inc., the newly public Handspring Inc., and a range of different Microsoft-compatible handheld devices from companies such as Compaq. But how much should RIM’s presence in this hot new market be worth to investors?
One thing is clear: It’s worth a couple of billion dollars more than it was just a few days ago. Investors have been pushing RIM’s share price upward at a phenomenal rate, leading up to the company’s quarterly report on Thursday. Several analysts have said that they expect RIM to meet earnings and revenue projections, and a couple of brokerage firms have reiterated their “buy” and “strong buy” ratings on the stock.
On Monday, RIM rose by as much as $10 (U.S.) or about 20 per cent at one point, after USB Piper Jaffray analyst Samuel May said in a morning research note that the company should report strong quarterly results, and revised his target price upwards to $90 from $75. On Tuesday, RIM climbed a further $11 or so at one point during the day, to $97 – meaning, of course, that it plowed through USB’s 12-month price target (chart).
At this point, the stock has almost doubled since early August (although it is still far from its all-time high of about $175). This kind of rampaging growth might seem a little odd considering that RIM announced a few months ago that it would likely report a loss for the current year, instead of the profit that it was expecting to report. In other words, investors have decided that they are now willing to pay almost twice as much for a stock that is losing even more money than it was just a few months ago.
Why would they do such a thing? Primarily because of the perception that RIM is one of the leaders in the wireless handheld race. But is it? It’s true that the new RIM Blackberry 957 device, which is similar in size and shape to the Palm, has been getting a lot of positive press, and the company has signed deals with major companies such as Compaq and Dell to market and distribute a co-branded version of the device. Tech leaders such as Dell founder Michael Dell are said to be Blackberry devotees.
But RIM still has to go up against Palm, which is still seen as the 800-pound gorilla of the handheld market, as a result of its dominant position and the fact it is backed by computer equipment giant 3Com Corp. Palm also has a market value of about $31-billion. And then there’s Handspring, which recently went public and has a value of $8.4-billion. It was founded by the couple that developed the Palm before it was bought by 3Com, and its device – the Visor – is seen by some as superior to the Palm.
RIM and its supporters maintain that the Blackberry beats both these devices because it is “always on” – in other words, it can receive e-mail at any time, much like a pager. However, the Visor can do this as well: U.S. users can insert a wireless modem from Novatel or Glenayre Electronics into the expansion slot on the device and retrieve their e-mail at any time using services such as OmniSky or the Reflex pager network.
In addition, while Palm recently announced that it is working with Motorola on a cellular phone that incorporates the Palm operating system – a device not expected to be available until 2002 – and RIM said it is also working on a cellular phone add-on for its Blackberry 957. Handspring has said that by November it will be shipping a module that turns its Visor into a cellular phone. The phone would use the GSM standard that is popular in Europe and is also used by Canadian cellular provider Microcell.
According to a Merrill Lynch research report on the sector released earlier this year – before RIM made its most recent meteoric move upwards – Research In Motion was trading at about 19 times the brokerage firm’s revenue estimates for next year, while Handspring was trading at 11 times, and Palm was trading at about eight times. As of the end of August, Merrill’s 12-month price target for RIM was $70 – it closed Tuesday at $93.50.
The fact that Research In Motion is one of the leading players in the emerging wireless handheld market isn’t really an issue – it clearly is, and it has developed some attractive features and partnerships. How much should you pay for all that? Good question.