A few words, a few questions with unsatisfactory answers, and Research in Motion’s brief time as market darling was seemingly over.
Last Tuesday, after surprising the street yet again with results that weren’t as bad as expected, shares of Research in Motion briefly passed the $15 dollar mark in after-market trading. Then, in what must have been a perplexing development to casual observers, the stock suddenly reversed course. The following day, shares were hammered; on the TSX the stock closed at $10.86, down more than three dollars.
The reason -that RIM said it was going to make changes to its services revenue fees- has been front page business news around the world. RIM’s service fees are its most profitable revenue source and many fear the changes are coming at exactly the wrong time. National Bank Financial analyst Kris Thompson said the decision brought RIM back it to the uncertainty that has characterized its troubled recent years.
“Management was ill-prepared to provide satisfactory answers,” said Thompson in a research update to clients following the quarterly conference call. “Investors will punish the stock until service revenue can be better quantified.”
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Other analysts, like Byron Capital’s Tom Astle, who has been modeling a decline in the revenue for several quarters, wonder why this came as such as a shock to so many. Astle says predicting RIM’s service revenue is next to impossible, but will the issue will be trumped in the short term by the launch of BlackBerry 10 devices, which will mean RIM is selling hardware at a profit again.
The best explanation we have seen of the whole affair comes from Chris Umiastowski. On Christmas Eve, the former Bay Street equity analyst addressed comments and questions posted by CrackBerry.com readers about RIM’s service revenue changes in a video posted to Youtube.
Umiastowski’s calm and measured analysis is required viewing for those who want to cut through the noise and truly understand the issue. We have included the video below. For tech issues beyond RIM, we’d also recommend Chris’s blog, of which we are regular readers.