Research In Motion On The Move (RIMM)

By Dean Lundell | October 16, 2007 AAA

Research In Motion (Nasdaq:RIMM) reported some incredible results for its fiscal second quarter, blowing away consensus estimates.

The blackberry builder racked up revenue of $1.37 billion in the quarter, up 108% from its second quarter a year ago and 27% better than its first fiscal quarter. The company's top line was driven by additional subscribers of 1.45 million, bringing its total subscriber base to roughly 10.5 million.

The company's wireless platform has become "the" standard that everyone else aspires to, so the company plans to further its operating leverage by licensing its proprietary technology to other wireless carriers, application developers and equipment manufacturers. To that end, Research In Motion already has agreements with over 270 carriers in at least 80 other countries. (To learn more, see What is an economic moat?)

Research In Motion's financial health is quite strong, with a solid balance sheet, very little debt and plenty of cash. The company can also boast of a return on equity over 28%, with roughly 75% of its revenue currently derived from the sale of its Blackberry devices. The intriguing aspect of Research In Motion's business model is that the service portion, whereby carriers pay recurring fees, is taking on an increasingly important role by providing a high-margin stream of continuous income. (For more on these calculations, see Breaking Down The Balance Sheet.)

The Dark Side
Research in Motion is certainly in the lead position in its industry niche, but it is not without competition. The company is or soon will be facing competition from Microsoft (Nasdaq:MSFT), Motorola (NYSE:MOT), Nokia (NYSE:NOK) and Apple (Nasdaq:AAPL). The potential market is huge and everyone knows that Research In Motion, even with 10.5 million subscribers, has hardly scratched the surface of what could be a massive market.

When You're Hot, You're... A Target
There is no denying the performance of Research in Motion, but be advised - nothing lasts forever. Investors must learn to control the amount of risk they assume. One look at a long-term chart of Xerox (Nasdaq:XRX) will prove this theory to be true. During 1999, Xerox pushed past the $60 mark, but imagine how you would feel still owning it at $5 in late 2000 or even in the $15-$20 range where it trades today. The same situation could happen to Research In Motion - be careful out there.

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