Tuesday, July 02, 2013

Is it Time to Sell Blackberry?

Investors and consumers alike have been speculating about the health of Blackberry (BBRY) for quite some time now, and for good reason.  With the latest earnings information it might be time for you to reevaluate your positions in Blackberry.  An editor’s pick on seekingalpha.com has distilled this information into a quick and easy reference that we have listed for you here.  Click here to read the original article.

BlackBerry (BBRY) this morning reported its Q1 2014 fiscal year earnings. This is a bomb of a report. The company did not release the total number of BB10 units sold. The EPS number was negative and missed expectations. The only positive at all is the company continued to build its cash which will support the stock, but at what price? BlackBerry has traded down over 15% in pre-market trading. The earnings call will be more critical than ever for BlackBerry. Tune in to it before you trade today.

Earnings Highlights
Diving into the earnings report here are the critical figures, their context, and a quick take on how I am interpreting each figure and how the Street might interpret each:

BB10 Unit Sales
  • Q1 2014 - WHO THE HECK KNOWS
  • Q4 2013 - ~1M units
  • Variance - ?????
o Grade: F - If BlackBerry does not report the BB10 unit sales as part of its earnings call, I would tell you that I would be very scared to own this stock going forward. Even if they do report these sales, they appear to have missed expectations.

BlackBerry Phone Unit Sales
  • Q1 2014 - ~6.8M units
  • Q4 2013 - ~6M units
  • Incr / (Decr) - .8M units up 13%
o Grade: F - BlackBerry sold 1M BB10 units in Q4 2013 out of 6M total units. I have seen very few estimates of less than 3M BB10 units for Q1 2014. For this to have happened, the company would to have had a mix of older phones of about 3.8M units and 3M BB10 units. That could be possible, but it is not likely. I do not see how any bull will be able to spin this number.

Total Revenue & Gross Margin %
  • Q1 2014 - $3.1B and 33.9%
  • Q4 2013 - $2.68B and 40.1%
  • Incr / (Decr) - $.42B and (620bps)
o Grade: D - Gross margin is the more important of the two figures. The company reported that Gross Margin % was negatively impacted by 200bps from a non-recurring item. Even still, the drop from Q4 2013 is still material. Why? The company will have to explain this on the conference call and I just do not think there will be a good answer.

Service Revenue
  • Q1 2014 - $806M and 26%
  • Q4 2013 - $964M and 36%
  • Incr / (Decr) - ($158M)
o Grade: C - The reported number is $72M lower than a normalized number due to a one time (hopefully?) foreign currency issue in Venezuela. Even when adding the $72M back to the reported number, the drop was 9% from the last quarter. Thorsten Heins provided guidance of a single-digit drop on the last conference call, but seeing the drop being as high as 9% is very concerning.

Cash and Equivalents
  • Q1 2014 - $3.1B
  • Q4 2013 - $2.9B
  • Incr / (Decr) - $.2B
o Grade: A+ - At some point in time, it will be hard to give BlackBerry an A for just maintaining its cash. The company needs to sell phones and it is struggling mightily to do this. This cash should support the share price, but it might not provide support until shares have fallen 20%.

North America
The only slight operating positive is that the company generated an increase in revenues from North America on a sequential basis and appears to have stopped the bleeding in this critical region for the time being.

Outlook Going Forward
The outlook going forward took a turn for the worse this morning. The earnings conference call should be a complete cluster and management is going to be on the defensive. If the company cannot give a reasonable reason for why BB10 sales appear to be so low, or does not disclose this number, the selling pressure will be immense. Even if the number is disclosed, this report has much more fodder for the bears than the bulls.

1 comment:

James Moore said...

I saw this headline in my rss feed and chuckled.

Blackberry is still in business? Really?

Speaking as a mobile developer, Blackberry isn't on the list of things people think about. At _best_, it's the thing you toss in when you talk about:

1. Android
2. iOS (and feel free to switch the order of 1 and 2)
3-10. looooooonnnnnngggggg pause
11. Windows Phone. Rumor has it that Microsoft is essentially paying people to write apps for their platform; that's the only thing that makes it interesting.
12. Other. Blackberry, Firefox Phone, whatever flavor of the week is newsworthy.