However, as was discussed in last November's posts, after looking into the DROID (both financially and physically) and keeping a close tab on sales figures, I was left unimpressed and didn't feel the DROID was a compelling enough product to justify the recent run-up in the stock price.
That was when the stock was around $9 a share. Today it's around $8 - underperforming the S&P 500 by 18%
Time For A Revisit
Although I didn't back Motorola as a pick late last year, I have been keeping an eye on the stock since then - I already did all this research, might as well keep up in case the situation changes. And recently, I've been seeing some serious signs of life for the DROID, and my philosophy is so goes the DROID goes MOT. With the introduction of the DROID X, Motorola has been building up steam in its smartphone marketshare, and in the cell phone business, marketshare is everything. As you can see below, MOT has seen a best-in-industry 136.8% growth in smartphone marketshare in Q1 2010. Granted that the overall marketshare is still pretty low, but I think that's already reflected in the stock price and nobody is arguing that MOT is starting from a difficult position.
The bottom line is that this is serious growth - the type MOT hasn't seen in a while. Furthermore, by parterning with Google's Android OS, MOT is building on what's arguably the best smartphone platform in the industry. In fact, in the first half of this year, Android smartphones outsold Apple's iPhone. Finally, keep in mind the numbers you see above are just for Q1 of 2010. Since then, the DROID X has been selling very well - a fact made apparent by the significant decrease in promotional by Verizon compared to the original DROID. Translating that to Stock Price
The reason I'm focusing so much on this marketshare numbers is because MOT is aiming to make itself more of a smartphone maker and less of a 'run of the mill' handset maker. This translates to fatter margins that can be applied to the bottom line and a higher stock price. Right now the stock is around $8. It has had a pretty good fun with the good news coming out for DROID, but I think it can have at least another 10-15% upside with this continued momentum. Be careful, though. If you see any indication of market share momentum dropping, I would put a tight trailing stop. Coming back from the dead can be a slippery endeavour.
Hey Sahil, interesting blog.
ReplyDelete'Since then, the DROID X has been selling very well - a fact made apparent by the significant decrease in promotional by Verizon compared to the original DROID.'
While I see your point about the advertising being relatively less than the previous Droid, I think this may be a significant oversimplification. I think there are a few reasons why Verizon has advertised less.
1) The original Droid was a success.
It was the first successful Android device on a major carrier (VZW or AT&T), so people know the Droid name, and no longer need to be sold on the product and the brand.
2) Android is a developed OS.
When you look at the timing of the original Droid launch, Android was in a much more nascent state. Most people outside of tech-geeks had no idea what the Android OS was, and they may have at-best been familiar with some 'Google Phone'.
Fast forward to 2010, Android is all the buzz. As you pointed out, it outsold the iPhone for the first time in H1 2010. Advertising to the levels of before is likely to be cost-ineffective since consumers are more educated about the smartphone market, and in particular Android devices.
3) Verizon also offers a plethora of new Android devices.
Previously, the Droid was the flagship device for VZW, and all other options were far inferior (see Droid Eris). Currently, Verizon offers two devices which could fight for the top spot, with a third coming in the form of the upcoming Droid 2. It is not as easy to say the Droid X is the top dog in VZW’s lineup, with a lot of it coming down to personal preference in form factor and proprietary overlay (e.g. HTC Sense vs. Motorola’s).
Anyways, these are mostly just my thoughts on the subjects, so I could be way off base! Keep up the good work.
Anil