Research In Motion Ltd (NASDAQ:BBRY)
is already up nearly 25% year to date, and hedge fund manager Prem Watsa believes the stock could be worth
as much as $40, suggesting that the remaining upside is over 170%. He says the “turnaround story won’t happen overnight, and it’s only just getting started.”
Prem Watsa founded Fairfax Financial Holdings and is considered the Warren Buffett of Canada, having grown his firm’s book value by nearly 25% annually since 1985.
Fairfax owns some 51.85 million shares of Research In Motion Ltd (NASDAQ:BBRY), which is 9.9% of the mobile phone company’s outstanding shares. This puts BlackBerry as Fairfax’s largest public equity holding, making up 24.5% of the fund’s portfolio.
Smartphones are by far the next-gen choice, having won over a sizable amount of market share from basic mobiles.
Watsa thinks that the BlackBerry Z10 is wildly popular and attracting about 30% to 40% of other smartphone users.
The interesting thing is that Research In Motion Ltd (NASDAQ:BBRY) really has its own market, with its email platform, whereas it appears Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) are competing more head to head.
Watsa had this to say about Research In Motion Ltd (NASDAQ:BBRY)’s future prospects:
People are estimating smartphone shipments of 1.6 billion in 2016. If BlackBerry is able to maintain a 5% market share, then you have to roughly sell 80 million smartphones. They shipped 6 million last quarter, 1 million new phones and they are already profitable. We think the fair value is around 40 something and the time horizon is long-term as always, but we feel very confident in the management team.
Research In Motion Ltd (NASDAQ:BBRY) also has a nice revenue mix, split between mobile devices and services. 60% of revenues are derived from BackBerry smartphones. The services segment accounts for some 35% of revenues and includes revenue generated by charging a monthly infrastructure access fee. Part of the turnaround efforts includes a headcount reduction, which includes reducing its workforce by around 30% by the end of fiscal 2013. During fiscal 2013, BlackBerry generated some $1.89 billion in free cash flow and had $2.87 billion in cash and no debt. Emerging markets are expected to see an impressive surge in smartphone demand. This is a big positive for Research In Motion Ltd (NASDAQ:BBRY), given international revenue accounts for nearly 80% of its revenues.