Last week, turnaround enthusiast Laszlo Birinyi of Birinyi Associates argued that BlackBerry maker Research In Motion (RIMM) today bears a striking resemblance to Apple (AAPL) in 1997 -- and urged investors to position themselves for a reversal in fortunes at RIM.
On its face, the assertion seems ludicrous. It's hard to imagine two companies more different than Apple and RIM today. Apple's on top of the world, owner of the best-selling music player, the most popular smartphone, and the dominant tablet on the market. (It also makes computers.) RIM... isn't.
The company's underperformed the Dow Jones Industrial Average by about 75% this year alone, as not only Apple, but Android-based smartphones from HTC, Motorola (MMI), and Samsung stole away its customers. The stock's been basically deserted by Wall Street, where even though RIM shares cost just three times earnings, more bankers now advise selling the stock than buying it.
Adding insult to injury, bankers such as UBS (UBS) and Deutsche Bank (DB) are telling their own employees to quit using BlackBerrys and switch to iPhones instead.
Darkest Before the Dawn?
So yes, the headlines look bleak. Yet if you can look past them, Birinyi argues there's more to the RIM-Apple comparison than meets the eye. Like Apple in 1997, RIM today has "been beaten down, it's a brand, it's got its fans, it's got ... products."
Indeed, it wasn't so long ago that RIM's "fans" were serious devotees. If you can think back to the years before the iPhone made its appearance, RIM's customers described its products as "CrackBerries" for the addictive effect they had on their users. So it's fair to say that Birinyi has made some good points.
Here some more food for thought: It's hard to remember now, but back in the time frame Birinyi is referencing -- 1997 or thereabouts, when Apple stock was selling for $7 a stub -- Apple was a company with an extremely beaten-down price, and an exceedingly tiny market cap. It may be worth $370 billion today, but back then, Apple averaged a market cap of just $2 billion, and an enterprise value even smaller (about $1.7 billion). GAAP profitability was elusive (Apple actually lost money in 1997), but the company had a firm foundation to build on, with more cash in the bank than debt, and about $100 million in annual free cash flow.
In these respects, RIM does look a lot like Apple. Priced at a sub-$9 billion market cap, RIM carries no debt on its books. To the contrary, it's flush with $1.1 billion in cash. And despite all its troubles, RIM is still bringing cash in through the doors -- about $1.8 billion over the last 12 months alone.
Point -- Counterpoint
So if we run down the list once more, we've got:
- A once-loved brand,
- a core base of fans,
- products that, while certainly far from dominant, still attract crowds (such as the one that rioted in Indonesia last month as customers literally battled in the streets for the chance to buy a BlackBerry Bold),
- and finally, a solid financial position from which to rebuild RIM's business.
In short, RIM does indeed have a lot of the same things going for it that Apple had back in 1997. What it lacks, of course, is a CEO in the mold of Steve Jobs to lead it back to prominence, and a must-have product like the iPod to spark consumer interest.
RIM Ready to Roar?
Will RIM find the leader it needs, and invent the product that said leader can ride to success, before consumer loyalty evaporates and the BlackBerry brand fades into obsolescence? I don't know. What I do know is that all the building blocks are in place for a revival, and that RIM's got enough cash on hand to keep itself afloat until "a miracle happens." And while hoping for a miracle isn't exactly the soundest strategy in investing, it has happened before, for Apple -- and it could happen again for RIM.
Motley Fool contributor Rich Smith does not own (or short) shares of any company named above. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple.