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

Page 1 of 2

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.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!