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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: UnBelievable who wrote (62388)	11/8/2000 5:22:51 PM
From: UnBelievable	Read Replies (1) \| Respond to of 122087

RIMM " We think paying more than 40 times sales for a small, money-losing company with these potentially fatal clouds hanging overhead is a questionable proposition." Morningstar's Take \| 10-05-00 Stock price as of analysis date: $106.00 Now Being Bid 109 7/8) After falling off a cliff earlier this year, Research in Motion's stock is up more than 150% in the past three months. Investors are buying into RIM's future prospects, looking past management's assertion that the firm will not be profitable for the next two fiscal years. Despite RIM's leading position in its market and torrid top-line growth, we question the prudence of paying more than 40 times annual sales for this money-losing company. There is a substantial risk that new entrants will be able to steal market share from RIM, which would cause the shares to get pummeled yet again. As the pace of life accelerates for many people, the need to remain constantly connected has become a top priority. Even though people have fallen in love with their Palm organizers, only the Palm VII is capable of two-way communication, and it requires users to obtain a Palm-specific e-mail address--much more cumbersome than the RIM platform. Laptop computers, for all their utility, are too clunky to be very functional, eliminating them from ever becoming hugely popular with the masses. That is where Research in Motion's products fill the void, as users are easily able to stay in perpetual contact with others. The company is doing very well, as evidenced by a record August quarter. Revenue increased 57% sequentially and 121% from the prior year, as consumers snap up every BlackBerry device that RIM is able to make. In fact, there is currently a small waiting period to get a RIM product. But there are storm clouds on the horizon. First, RIM lacks the promotional scale to compete in the United States, where bigger firms can outspend the small Canadian company. In the August quarter, for example, the company spent 37% of sales on marketing costs, contributing to a $0.02 per share loss. Management has warned that this heavy promotional spending will continue, as the company tries to build market share in the States. Second, RIM relies on its channel partners for distribution, even though these companies may eventually launch competing products. We think paying more than 40 times sales for a small, money-losing company with these potentially fatal clouds hanging overhead is a questionable proposition.