RIM (RIMM) Service Revenue Will Decline, Not Disappear Stresses Goldman

December 21, 2012 11:49 AM EST
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Price: $14.64 +12.36%

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Shares of RIM (NASDAQ: RIMM) declined this morning on fears related to changes in its service revenue model for BB10. Goldman Sachs believes the decline is a result of "misunderstanding". Analysts expect it to decline, not disappear.

"Importantly, we believe there may be a misunderstanding that as a result of the move to BB10, all of RIM's services revenues are at risk. Rather, we believe its current installed base will not be affected by the different BB10 pricing structure, though it will continue to be impacted by competition," said analyst Simona Jankowski.

New consumers who purchase a BB10 device are not likely to pay a service fee, but importantly, existing customer will. New enterprise subscribers would probably pay some level of service fee, though plans will be tiered and APRU could declined. New BB7 subscriber will pay service fees, noted the analyst report.

A second point worth noting is increased carrier support for BB10, seen by some on Wall Street as a trade-off for lower service fees.

"Importantly, RIM noted that BB10 is now in technical acceptance programs with over 150 carriers, up from 50 carriers about three months ago," said Jankowski.

Jankowski thinks there is a 30 percent probability of a "bull case" for Research In Motion. In this scenario, RIM stock would be worth $30 per share.

Goldman Sachs has a Buy rating on RIM with a modified price target of $17.00 (from $16.00).

For an analyst ratings summary and ratings history on Research In Motion Ltd. (NASDAQ: RIMM) click here. For more ratings news on Research In Motion Ltd. click here.

Shares of Research In Motion Ltd. closed at $14.12 yesterday.

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