We’ve had a lot of numbers thrown at us today, and the fact remains, BlackBerry has disappointed the Street and shares have seen a low they haven’t seen since January 2013. Let’s try and make sense of this all:
The Street Earnings Estimates:
$3.38 Billion in revenue
$0.08 earnings per share (EPS)
3.6 million BB10 units sold
3.9 million BB7 units sold
Actual Earnings:
$3.1 Billion in revenue
-$0.13 earnings per share (EPS)
2.7 million BB10 units sold
4.1 million BB7 units sold
Subscribers base dropped to 72 million from 76 million
Subscriber Base
The BlackBerry subscriber base has dropped 4 million users globally, but the announcement of a new BlackBerry 7 device may resurrect the subscriber sell-off. However, Thorsten and company announced that they will no longer be releasing non-economic metrics during earnings call any longer, which means they will not be releasing the subscriber base metric from hereon out. I think this is a good strategy, but I have a feeling if the sell-off is reversed, we will see it creep into earnings. Otherwise, forget about it.
BlackBerry may be leaning on this legacy strategy with a more agressive approach toward manufacturing with Thorsten cutting 6 out of 10 manufacturing sites out of the picture in the past two year, netting BlackBerry more success on the hardware side; now, focusing more on low cost, high margin hardware. We’ve seen this approach benefit them with the Z10 and Q10 – Q10 priced higher than the Z10 for cost of materials alone. If they can pull this off with the BB7 hardware, they may actually position themselves to prevent the loss in subscribers.
Implications of Venezuelan Currency Issues
Now this is the doozy. Let’s break this down a bit more. In Venezuela, there are currency restrictions that limit access to dollars with currency controls over the past decade, making it increasingly difficult for companies with foreign headquarters to repatriate, or convert, cash at the official exchange rate. The Venezuelan government has devalued its currency a staggering FIVE times over the past nine years. They are currently bottomed out at 6.3 bolivars per USD.
This means that BlackBerry will not be able to resurrect much of their earned revenue from the Venezuelan government, if any at all, within the next few years. This has to be written off as a loss and BlackBerry has probably known about this for quite some time, and it was now that they decided to write it off as a loss on the balance sheet. It was coming, no one really knew, but here it is.
Breaking this loss down, it took profit down by 10 cents a share (-$0.10) and crushed any hope of establishing a break even point or a profit for the company. That 10 cents was the difference of having a good quarter, or a bad quarter. Omitting this result would have net a loss. And I doubt that a decline in sales and EPS would have curtailed the effect of this earnings report.
Why We Shouldn’t Worry
For the present, the shorts have won out. BBRY is now trading at $10.89 down $3.59 (-24.79%). But if we can see toward the future, the Q10 was just released and it has posted strong sales to date. The Z10 has disappointed, but with every week that passes, it begins to assert itself as a true competitor in the mobile computing space. Sales have increased across the globe; region by region we have seen impressive growth. But is it too slow for comfort? With the increased budget toward marketing, injection of BlackBerry 10 into the market, and working with carriers to offer promotional discounts, BlackBerry is trying to be more accessible. This may guide the devices into the hands of even more consumers.
The spending shouldn’t and really doesn’t scare investors. What has scared a lot of investors off is the fact that the estimates released by the Street – as conservative as they were in some regards – were missed by BlackBerry. However, the upside here is that the Canadian smartphone maker has incurred no new debts and has managed to add to it’s cash reserve to achieve a $3BB store on hand.
Thorsten Heins has turned the company around and he has assured investors that they will make BlackBerry 10 a success, it’s just not going to sacrifice the long term for these incremental, short term gains.
Maybe Alicia Keys can save them. Help! Alicia! Do something!