Barron's. RIMM: Sell-Off Unwarranted, Says Bernstein, Sees Upside to $20

http://blogs.barrons.com/techtraderdaily/2012...20-upside/

In the thicket of negative sell-side reports on Research in Motion ‘s ( RIMM ) today, following its fiscal Q3 report last night , at least one analyst thought today’s sell-off was an over-reaction.

RIM shares today traded down $3.21, or 22.7%, to close at $10.91, reversing gains last night, as comments from management on the post-report conference call suggested some portion of the company’s secure messaging network service could be essentially given away for free in return for getting uptake with BlackBerry units being sold starting in January.

Bernstein Research ‘s Pierre Ferragu , who has a Market Perform rating on RIM stock, thinks a bit too much is being made of the change in the services model:

We see the stock reaction as unjustified and a good opportunity to invest the short term rally we recommend. We believe the situation for Blackberry on that perspective is very clear. It is understood that the migration to Blackberry 10 will create some pressure on Service revenues, most likely for some consumer segments. On that basis we see two potential scenarios: Either Blackberry 10 is a slow launch, driving limited upside. In that case, older contracts will continue to form the vast majority of RIM’s user base. RIM will continue to benefit from the service revenue cushion [...] In that scenario, RIM’s business model is much more resilient than the stock and consensus expectations imply. Or Blackberry 10 is a success, and in that case, there is a risk that service revenues come under some pressure, as maybe the new pricing structure creates some downside. But let’s face it. If Blackberry 10 is a success, the stock isn’t going to trade where it is today but probably at a multiple of it! A structural decline of Service revenues in the mix cannot be considered a downside risk on the recent stock price in such a scenario.

As for the January 30th debut of the BB10 software, the new face of BlackBerry, “Contrary to our initial forecast, we believe the launch of Blackberry 10 is ramping up positively,” he writes. “We have seen good anecdotal evidence that carriers have adopted a positive attitude about it.”

Ferragu thinks RIM shares can get to $20 over “the next 3 to 4 months, as a short-term trade.” He thinks that further out than that, investors must be careful because with only 50 million to 60 million consumer users, RIM has only a small pool of potential upgrade customers. He also argues that within its base of perhaps 30 million corporate users, “we see more and more evidence of a market share losses in corporate, with a negative trend both on the number of users and replacement cycles.”