RIM Will Burn Through $1 Billion To Launch BB10
RIM is currently flushed with cash, and analysts believe that they will need that cash in order to get BlackBerry 10 launched.
Research In Motion is flushed with cash, despite a poor quarter and an announcement that BlackBerry 10 is getting delayed. Current cash-on-hand for RIM is around $2.25 billion, or about $4.29 per share of the company. Analysts are predicting now that most of that cash will be burned through to launch BlackBerry 10, possibly destroying the book value of RIM stock. Analysts at Barclays are only projecting a “burn” of $677 million and targeting RIM stock at $6 per share; this implies that they are valuing the patents, handset business and BBM network at roughly $1.6 billion.
However, J. Mintzmyer, an analyst from SeekingAlpha, has a different opinion on RIM’s cash situation. He has calculated the average expense per quarter for the company at $386 million for research and development and $690 million for sales. Using these figures, he expects RIM to lose roughly $1 billion in cash over the next three quarters as BlackBerry 10 gears up for launch. Assuming that BlackBerry 10 flops, RIM will have $1.25 billion in cash, or $2.38 per share, along with warehouses filled with Playbook tablets and new BlackBerry phones; even if this inventory has to be sold at 50% of retail, the company will make money. Mintzmyer calculates that if the business and inventory is worth $1 billion, the network is worth $1 billion, and the patents are worth a conservative $2 billion, the stock is still worth $10 per share. He says the only way the shares are worth only $6 would be if the patents were worth only $1 billion and RIM was out of cash.
In essence, Mintzmyer is saying investors should buy stock in RIM, as even though the company will burn through roughly $1 billion in cash, the stock price is severely undervalued at the moment.