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RIM: How Long Can Investors Hold Their Breath Waiting for 10?

RIM has 515 million shares outstanding leaving a valuation of about $10 a share using a discounted liquidation (back of the envelope) method of calculating "how low can it go." I admittedly use aggressive discounting when calculating my risk because there is almost always some unknown that pops up if a company actually is on the way down.

Who is willing to buy BlackBerry? While I would not look toward the usual suspects including Apple, Google and Microsoft, I will keep a watchful eye on maneuverings made. RIM does have valuable intellectual property any of the three others desire. Another obvious potential bidder stands like a bull in a china shop.

China Mobile (CHL) is a $200 billion company, easily able to make an offer. Is the U.S. and Canadian governments willing to allow a free Chinese wiretap on government BlackBerries? Not likely, however, if broken up, RIM assets in India and the Asian region may be attractive. Along with mobile carriers, the China sovereign wealth fund may have an interest in parts. Again, it's a long shot as a total takeover would face a mountain of government resistance.

Other non-Chinese companies like HTC and Samsung make up the short list of many who will have at least a minimal interest. The point is not to "guess" or pick who will buy RIM, but more importantly the many options available to Heins in seeking a solution.

From RIM's press release on Tuesday:

Our global subscriber base continued to grow this quarter to approximately 78 million, driven primarily by growth in international markets, which is partially offset by high churn in the United States, and our BBM user base has grown to approximately 56 million users globally.

Global sales represent lower margins than in North America; however, the growth demonstrates the ability to execute in several large markets in the world. Expect RIM to report North America near 23% of RIM's revenue.

Perhaps the most striking facet of RIM is how unloved the stock is on Wall Street; meanwhile sales continue to improve in India, Indonesia, and Latin America. Along with RIM, Google's Android, and Nokia are likely to find greater success in developing markets compared to Apple due to price points in the near future.

RIM's stock price acted about as good as can be expected given the company earnings' update. Opening near the low of the day and a steady climb after is indicative of initial panic selling followed by value seekers. Given the high implied volatility, the real opportunity is in the options market.

For a conservative long approach the July $8 strike put for 30 cents looks attractive. A more aggressive position includes selling the July $10 strike put for 88 cents. Personally I like the $10 strike put more because of the round number price pinning during expiration, and for the relative risk-vs.-reward ratio.

Author does not hold a position in any stock mentioned.
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