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

To: UnBelievable who wrote (62394)	11/8/2000 5:30:37 PM
From: UnBelievable	Read Replies (1) \| Respond to of 122087

RIMM Investors Should Pass on Research In Motion by Todd P. Bernier \| 02:14 PM \| 06-30-00 Investors who bought stock in Canada's Research In Motion RIMM may want to take a good long look in the mirror and decide whether this is a company worth holding on to, especially amid weak profitability. Although the company is selling truckloads of its neat interactive pagers, high promotional expenses are stunting the firm's profitability. At about 30 times trailing 12-month revenues, there are better, less expensive companies to buy on the market. RIM's results for its May quarter, reported after Thursday's market close, were highlighted by revenue growth of 69% to more than $27 million from the year-earlier period. From a top-line perspective, this was the best quarter in the company's history. It is clear that RIM's two-way pagers are moving beyond being a corporate toy; many large corporations such as Intel INTC have started supplying its employees with RIM's flagship BlackBerry pager. That is, however, where the good news ends for investors. The company spent a staggering sum of $10.4 million, or 38% of revenues, on sales and marketing, a figure more than three times what it spent in its February quarter. Although the company has publicly stated that it would significantly ramp up its promotional spending, to capitalize better on the many distribution and partnership agreements it has signed with the likes of America Online AOL, Compaq Computer CPQ, and Dell Computer DELL, this figure seemed much larger than what anyone on Wall Street was expecting. It was, in fact, the main reason why RIM had an operating loss of about $2.3 million. Without the $2.9 million in interest income that the company booked in the quarter, the company would have badly missed consensus analyst profit expectations of $0.01 per share, instead of simply meeting this already-reduced target. In Thursday's conference call, management warned that it is unlikely that the company will generate a profit for the current fiscal year, which ends in February. Up until the earnings announcement, analysts had been reducing their forecasts for the current fiscal year, but no one expected the company to be unprofitable for the entire period. This will certainly weigh heavily on the stock, with fears growing that the tiny Canadian firm does not have deep enough pockets to compete effectively with the big boys south of the border. RIM investors have seen their investment crash and burn recently, as the stock has shed nearly 80% of its value since March. Even though management predicted that revenues would likely double in the current fiscal year, it is hard to recommend the stock of a money-losing company, particularly when much larger competitors such as Motorola MOT are offering comparable products that are more attractively priced. With its stock selling at nearly 30 times sales, RIM may be one company that investors should choose to pass on, at least until the firm can start generating some decent-sized returns. Todd P. Bernier, CFA, is a stock analyst with Morningstar.com. He can be reached at todd_bernier@morningstar.com.