Three Mistaken Reasons to Buy Research In Motion Ltd (BBRY)

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Research in Motion Ltd. (BBRY)Following Research In Motion Ltd (NASDAQ:BBRY)’s disappointing financial results, the bulls have been forced to revamp their thesis. Unfortunately, some of their newest arguments don’t entirely pass the smell test. Here are the top three mistaken reasons to buy Research In Motion Ltd (NASDAQ:BBRY).

The big cash pile

Bulls regularly point out BlackBerry’s big cash balance and strong free cash flow. And at first glance, a lot of their points make sense.

First – BlackBerry is sitting on $3.1 billion in cash and investments. Given the company’s $4.8 billion market capitalization, cash could represent some kind of a floor underneath the share price.

Second – Research In Motion Ltd (NASDAQ:BBRY) has posted impressive cash flow numbers. During the first quarter, the company generated nearly $600 million in free cash flow suggesting to many that the underlying business is sound.

But BlackBerry’s cash position isn’t nearly as strong as its financial statements would lead you to believe.

First of all, one-time gains mask BlackBerry’s cash burn. Much of the company’s gain was due to a one-off tax receivable benefit. Excluding this, BlackBerry actually burned through $350 million during the first quarter.

In addition Research In Motion Ltd (NASDAQ:BBRY) has bolstered its cash position by delaying payments to suppliers. In the past two quarters, the company’s accounts payable has doubled to $1.2 billion. That’s not sustainable. Expect the company’s cash balance to fall considerably in upcoming quarters.

The service business

Some bulls think BlackBerry will quit the hardware business and move completely into services. But while the company is taking steps in this direction, these bets are speculative at best.

ACI Research analyst Ed Zabitsky thinks BlackBerry could become a social network when it releases its BBM messaging service to Android and iOS later this summer.

But as Fool contributor Evan Niu points out, a social network-like service is a long shot. First, it’s unclear how a free service could be at the heart of the company’s turnaround. With only 72 million subscribers (though that figure will likely grow significantly after release), the advertising potential for BBM Messenger is small when you consider the hundreds of millions of members that use rival services like Twitter and Facebook.

How much value should investors really assign to a risky social network start-up?

Other analysts think Research In Motion Ltd (NASDAQ:BBRY) could reemerge an enterprise device management company. In June the company rolled out Secured Work Space. This is a new service that allow businesses to manage multiple platforms (Android and iOS) in the workplace.

The problem with this theory is that according to Gartner, the entire device management business is only a $500 million industry with lots of competitors and tight margins. BlackBerry would need to corner the industry and expand it by a factor of eight just to replace its current service revenues.

But there is one hole in my thesis here: the company’s QNX operating system. The possibilities for the platform seem limitless.

Vehicles are one such outlet. Communicating and controlling our vehicle systems with mobile devices represents the future of the automotive industry. Imagine the ability to customize your dashboard, and the chance to use of 3rd party apps, or your car sending you a diagnostic before a scheduled repair. That’s all possible on the QNX platform.

And Research In Motion Ltd (NASDAQ:BBRY) is making good on its promise to expand in this area. In June, the company unveiled QNX on the Bentley Continental and the Jeep Wrangler. Today there are already more than 30 million vehicles already the running on QNX software.

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