Blowout expectations dashed, Wall Street sends RIM downward

The perversity of Wall Street came into focus after Research In Motion Ltd. delivered solid fourth-quarter fiscal 2006 earnings yesterday that were still below some expectations. It’s all about emotion and overblown expectations, it seems.
Investors apparently had already driven up the price of RIM’s stock on a wave of enthusiasm for the vendor’s products and momentum, and with great expectations for fiscal fourth quarter results.
So when the actual results were in some cases below the Street’s hopped-up expectation of a “blowout” quarter, and the outlook for the first fiscal quarter of the year was somewhat modest, the stock price slumped.
Of course, there was also the surprise news that the Securities and Exchange Commission had upgraded its investigation of RIM’s past stock-option practices from “informal” to “formal.” The company said that restatements of past earnings would have an “immaterial” effect on its financial status.
Heavy trading in the company’s stock this morning took RIM’s shares down as much as 8 percent, after it recently had reached a record high. The stock bumped along around $134.90 by mid-day.
Though the company’s revenue skyrocketed 66 percent over the year-ago quarter to $930.4 million, a swath of analysts had projected something closer to $935.4 million. Net income-characterized as “preliminary” due to the forthcoming restatement of earnings-rose to nearly $188 million for the quarter, from $18.4 million in the year-ago quarter, when a raft of one-time expenses dampened profits, including a settlement with patent-holder NTP Inc. of $163 million. Subscriber adds for the quarter topped one million customers, bringing the number of people addicted to their BlackBerrys to about 8 million.
For the coming quarter, RIM’s first fiscal quarter, the company projected revenue between $1.03 billion and $1.08 billion; Thomson Financial’s forecast is for $1 billion in revenue.
Apparently, investors had expected even greater revenue from the BlackBerry vendor.
The company said revenue and subscriber growth was fueled in part by its consumer-oriented BlackBerry Pearl device, which analysts said would drag the company’s average selling price downward, though ASPs at RIM remain enviable. RIM’s new BlackBerry 8800 for enterprise also is seeing traction exceeding the company’s own forecast.
What’s it all mean?
“We see growth opportunities and a strong foundation for the company,” analyst Ittai Kidron of CIBC World Markets wrote to investors this morning. “But with the stock priced for perfection, the in-line (current) quarter and outlook are likely to weigh on investor enthusiasm. (We) question the possibility of near-term upside.”