Why RIM’s Stock Price is Not an Indicator of BlackBerry 10 Success

The past couple of weeks have been a rollercoaster ride for Research In Motion (RIM) investors, analysts and BlackBerry watchers in general.

RIM saw an eight-day stock rally, its longest in four years, which sparked a flurry of activity from both existing and new investors. Analysts and advisors quickly reacted to the stock rebound, with some predicting a RIM comeback and others suggesting it will be meaningless in the long run. Yesterday, a new report from Kantar Worldpanel ComTech said RIM’s market share had decreased yet again, and its stock price saw its most significant drop since June. Today, Nokia’s attempt to cease sales of BlackBerry products in the United States and other countries due to patent violations by RIM will surely hurt the Canadian company’s stock price even more.

But the fact of the matter is, at this point, RIM’s stock price is not an accurate indicator of the potential success, or lack thereof, of RIM’s new BlackBerry 10 platform and devices, which will be unveiled on January 30 and likely released in the following weeks. Here’s why.

Today, whenever RIM makes any sort of “positive” announcement related to BlackBerry 10—as opposed to the many “negative” delay-related announcements it made during the past years—some investor-advisory firm suggests that now is the time to buy up RIM shares. Investing is, in effect, gambling, so some investors will follow the advice, envisioning a large reward for the risk, which in turn increases RIM’s stock price. More demand for the stock means a higher stock price.

RIM’s latest bits of positive news: 1) Wireless carriers are showing strong support for BlackBerry 10, and the devices have been in the carrier-testing stages for weeks now; and 2) the company set an official January 30 BlackBerry 10 launch date—though it has not yet shared specific release information. Both announcements resulted in the strongest growth RIM stock has seen in years. And if RIM investors believe in BlackBerry, the future must be bright for the new BlackBerry 10 platform, right?

Wrong. Many investors care about one thing and one thing only: Profit. With the exception of Prem Watsa, a RIM board-member who founded Fairfax Financial Holdings, RIM’s largest stock holder; Mike Lazaridis and Jim Balsillie, the former RIM co-CEOs and second and third largest RIM investors, respectively (according to Bloomberg); and my colleague Kevin Michaluk, CrackBerry.com founder, many investors probably don’t care one bit about the future success or downfall of BlackBerry, except where it affects their bank accounts.

Investors, particularly the new ones, could be buying RIM stock, and therein increasing RIM’s share price, for a variety of reasons other than faith in the company and BlackBerry 10. For example, it could be a wise move to buy RIM stock now with the idea of selling it off just before or right after RIM’s BlackBerry 10 launch, because the price is relatively low right now and interest in the company and its new platform will be at a peak in late January, early February and possibly into the spring of 2013.

Also, many advisors and investors still see a lot of value in RIM, regardless of whether or not BlackBerry 10 is a success, because it reported more than $2 billion in cash and short-term investments in the previous quarter, and it holds a pile of valuable patents and intellectual property, all of which mean that RIM is still “healthy” in some ways. A lot of money could also be made in licensing deals or an all-out sale.

On the other side of the coin, investors could be selling off RIM shares based on new reports of decrease market share, which could be meaningless if BlackBerry 10 is well received. 

The strength of RIM’s platform, developer support and applications, marketing, and a whole lot of luck are what will ultimately determine the fate of RIM and BlackBerry 10, not analyst or investor predictions and the resulting stock turns. (Check out my impressions of the first two BlackBerry 10 handsets.) RIM’s stock price next spring will be a lot more telling.  So, for now, take the reports of stock spikes and spirals, and the associated predictions, with a grain—or a spoonful—of salt.

AS