New trade: Long Apple (AAPL) & Short Research in Motion (RIMM)

By: ispeculatornew
Date posted: 11.01.2010 (5:00 am) | Write a Comment  (4 Comments)

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I have been very vocal about Research in Motion and still think that there is a possibility that RIMM is not quite dead yet, but there is one thing that looks certain: It is in a very poor shape right now and things are not looking very promising for the Canadian smartphone maker.  This is not an easy trade because there is always the possibility of a rebound for RIMM but I believe that the longer this trade goes, the better its odds. The smartphone market has been a fascinating environment and while Google is one of the big players, it remains mostly a search company and so the two best possibilities in terms of investments are Apple and Research in Motion.

Before getting started, here are the main numbers that I used to decide on this trade:

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Trend Analysis

I was a bit surprised to see Research in Motion’s superior trend analysis but that originates mostly from  the recent rise after RIMM displayed its Playbook which simply makes it a better moment to short the company.

Long Apple

No doubt, Apple continues to deliver exceptional growth thanks mainly to the Iphone. I was a bit shocked to see analyst reactions to the most recent earnings release as they were disappointed to see a smaller number of Ipads sold compared with the very high expectations. But the numbers were very strong and the Ipad continues to look like the next big thing for Apple. I say “next big thing” but in reality the Iphone is far from done. Apple continues to battle it out with Google Android for the top spot for smartphone market share. Some think that Apple is so huge that it can no longer keep up strong growth. That is true to an extent because Apple now has over $20 billion of quarterly sales. That being said, as recently as 2009, the best quarter for revenues had been $12,2B… yes you read that right, Apple has improved its revenues over 60%!

Another business that I really like for Apple is its content and apps sold through Itunes. I had discussed the possibility of Apple buying Netflix which does seem unlikely but it does give you a very good idea of how important Apple is becoming in the content space. It is the leader in music and apps and is catching up quickly in movies, ebooks and even tv shows. That business is booming and while it represents a small portion of Apple’s business, it is growing fast.

Short Research in Motion

The Waterloo based company is in big trouble despite announcing with very decent earnings there is no doubt about it. It has been working on two big products in the past year. The Torch, its new touch smartphone that would compete with the Apple Iphone and is now setting high expectations on the Playbook, a tablet that will compete with the Ipad. The problem is that customers are not turned out by those devices. Just take a look at this chart from Google trends that displays how frequently users look for these products:

You can see how the Iphone (red line) & Ipad (orange line) are miles away from the Torch (blue line) and Playbook (green line) which are almost a blip on the chart… It’s not looking good for Research in Motion and while it is still very much profitable and trading at a low P/E, I think things are looking bleak.

Just take a look at the charts for both companies:

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4 Comments

  1. Comment by Doug Hutchison — November 1, 2010 @ 9:53 am

    Why !! Why do you love to hate RIM, and compare products to Apple. They are completely differnt and after different markets. RIM HAS SUPERIOR PRODUCTS PERIOD. and if you have over $300/share to waste on Apple then go ahead you will regret it.

    Hutch

  2. Comment by IS — November 1, 2010 @ 9:57 am

    @Doug – I think you are mistaken,

    -I have been long RIMM very recently
    -Completely different? How so? They both offer smartphones, now target both corporate and personal accounts. Apple recently launched the Ipad, and RIMM is launching the Playbook to compete with it.. not sure how different they are?
    -How are RIMM products superior exactly? Not saying they’re not, I actually have a blackberry… and love it. But there is a reason why RIMM is losing about 1% of market share per month….

  3. Comment by belay — December 22, 2010 @ 12:17 am

    I think if you are going to publish an article, you must put more effort into it than this. You might have well have said, “everyone likes Apple so we should buy the stock. QED.”

  4. Comment by IS — December 26, 2010 @ 1:33 pm

    @belay – I see what you mean but I do give more information in the IS Premium newsletter. In any case, will try to add a bit more details in 2011:)

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