RIM's Good News: Why It Gets Even Better

Shares of Research in Motion took a bit of a hit in after-market trading the moment its earnings were released. Seems like a classic "sell on the news" kind of reaction, but this stock could yet turn around during the company's conference call.

On their face, RIM's numbers are blockbuster: 50 cents a share; $1.37 billion in revenue; 3 million handsets shipped, 1.45 million new subscribers. All those categories are up sharply, both year over year and sequentially. Trouble is, when a stock runs up 40% in just three months, much of this growth was already built into shares. That's the reason for the sell-off.

But investors may have a change of heart when they digest the company's third quarter guidance. The "wow" factor is strong: a new earnings-per-share range of 59 cents to 63 cents when the Street had been at 55 cents; a new revenue range of $1.6 to $1.67 billion. Analysts expected $1.51 billion. Global Crown's Pablo Perez-Fernandez, a RIM bull, was as high as $1.57 billion. Even he could be $100 million light.

James Faucette, the wireless analyst at Pacific Crest Securities told me right after the numbers were released that he was watching the new subs number very closely. He was not disappointed.

In fact, he told me that even with the stock's 40% run this past quarter, based on these numbers, he'd be accumulating even more RIMM shares at this point. He maintains his $110 target on shares, which he himself concedes might be too conservative. He remains optimistic that this good news story shows no signs of letting up any time soon.

One other observation: there are so many comparisons between RIM and Apple right now as the two do battle in the wonderful world of wireless. But unlike Apple, RIM didn't make any move to dampen expectations for the upcoming quarter. Here's a company that's performing like gangbusters and isn't making excuses, isn't shying away from its success, isn't trying to pull one over on Wall Street. This kind of approach has served the company well. RIM shares continue to out-perform Apple. And based on today's numbers, it looks like they will again.

Look for RIM to pop during the conference call and erase any snap reaction to the downside that the company suffered when its numbers hit the wires. Blackberrys success seems here to stay for the foreseeable future.

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