In what has to be one of the biggest drops of the year, the stock of Research in Motion (RIM) went down by 23% as investors sold their stake and fled the company. The reason for the drastic reaction shown by the stakeholders is a new service-fee structure which has to be introduced. According to the early reports, the new structure would reduce the company’s revenues considerably. Hence, nearly a fourth of the investors who had their money tied up in the BlackBerry maker’s stocks sold their stakes.
Slow Sales, High Service Revenue
Over the past couple of years, BlackBerry has faced intense competition from the new smartphones and tablets which have stormed the market. There was a time when it was considered the premier enterprise phone but now managers and entrepreneurs have opened up to the idea of using an iPhone or an Android device. This has led to a decline in the sales of the BlackBerry, severely denting RIM’s revenues and profitability.
As the profits have gone down, the service charges levied by the company have started accounting for a major share of the revenue. In fact, it is considered that the service charges make up nearly a third of the company’s revenue. In the current structure, wireless carriers and companies have to pay RIM for utilizing its proprietary network for routing messages across the world. The company had stated its plans to change the structure with the launch of BlackBerry 10 which would impact profitability.
RIM Chief Executive Tries to Salvage Situation
The RIM Chief Executive Thorsten Heins had announced on Thursday that the company would put in place a new ‘tiered’ service-fee structure. He had clearly implied that it would affect the company’s profits in a negative way. From the time he made the announcement, a wave of panic ran through the company’s investors. Throughout the whole of Friday, they were focused on selling off their stock and escaping before it loses value.
Heins later appeared on TV several times throughout the day to try and salvage the situation. However, his earlier announcement had made such an impact that there was no one to listen to him. His efforts ultimately proved to be in vain as the company’s stock kept plummeting over the course of the day. Those who have sold their share in the company are unlikely to be enticed by future performance while the ones who have held on would also be having second thoughts.
Mini Recovery Stopped In Its Tracks
Over the last three or four months, RIM’s stock had stabilized to a great extent. With the BlackBerry 10 to be launched soon, investors knew the stock was going to increase in price. Hence, there was high investor interest in the stock and they had rallied to push the market capitalization of RIM upwards. But, this latest episode has halted the mini recovery in its tracks. As a result of the steep fall in stock price, RIM’s market capitalization went below $6 billion.
It is unlikely that RIM would be able to salvage the situation at present. They have to wait for the launch of BlackBerry 10 to rescue their stock price.
[Image via currenteditorials]