On June 28th 2013, BlackBerry will be releasing their financial data to all investors (and interested parties) during it’s quarterly earnings call. Yep, it’s that time of the year again – earnings season is upon us. It’s been three months since we’ve officially heard from BlackBerry on their financial progress on the road to rebounding the once struggling company. Most Wall Street analysts have reported that their expectations are high for BlackBerry. Few, however, think otherwise. This is all you need to know in preparation for the First Quarter, Fiscal 2014 Earnings Call (Q1FY14).
Exactly one year ago – Friday June 28, 2012 – we had reports of failing Research in Motion company infrastructure, delays in the BlackBerry 10 product launch, and earnings that indicated there would soon be a huge sell-off of the Canadian based RIM to some foreign entity.
Looking back on that now, we can surely say the company has made a comeback, and today’s gains show proof of optimism all across the Street.
The bears on Wall Street have conceded that BBRY may have an upside for Q1FY14
Well, the bears have always sounded off in a negative tone, but this time it seems to be a concession that may benefit the security in the short term…and maybe even in the long term. They have agreed that BlackBerry may beat the Streets consensus which may benefit the long term in regards to sales and revenue. Yet, a lot of these major hedge funds remain short on the stock.
Now, shorting a stock means that you are betting on the underside of a company’s performance i.e., their failure. As of today, BlackBerry is close to 33% short. This means that nearly a third of shareholders are betting on a loss for BlackBerry. However, this assessment could mean the beginning of the end for most bears on the subject matter.
Morgan Stanley has cut the Q1FY14 expectations, but says that the upside of BBRY may ignite a comeback
The goliath of hedge funds, Morgan Stanley, has made their expectations public. They are narrowing their point of view, in terms of revenue, on the current business model that BlackBerry maintains. This speaks more toward the short term, but the long term has major upside based on the brand and brand marketing. BlackBerry 10 is new; it’s sleek. It possess major upside (or downside) for investors because it is the best that the company has and it has invested its future in this operating system – win or lose. Enter the shorts. Loo, you’re going to get this with every company. Look what happened to Netflix back in 2011 when it turned against it’s subscriber base in order to generate more revenue. This kind of stuff happens all the time. The shorts won, the longs lost. Netflix has since righted the wrong and is back on track, but this is one case of many that proves a company experiences such highs and lows at a very severe cost. It takes courage to reinvent a company, let alone a brand – especially one that was once a household name – one could say, the Clorox of smartphones.
Recalling Previous Earnings
To close out the FY13 period, BlackBerry posted earnings that surprised many on The Street, earning roughly 4% on their revenue stream at a EPS of $0.19 cents. This beat almost every expectation and shares rose on the news. Many called out for the inflated amount of legacy devices posted on FY13Q4, and made mention of the fact that the revenue stream will decline with declining legacy sales in the coming months due to BB10 devices phasing out the older Blackberry handhelds. This justification was made when BlackBerry made public the percentage of service revenue it gained from it’s legacy devices (approximately 39%).
What most failed to realize was the increased profit margins on the BB10 devices themselves that will (allegedly) compensate the company for loss in service revenue. This will become more apparent during the earnings call when we can compare service revenue versus profit margins and sales volumes of BB10 devices versus their predecessors.
Recent Calls
Mark Sue of RBC Capital Markets reiterated a Sector Perform rating on shares of BlackBerry and an $18 price target. He indicates that the earnings report “may have something for both longs and shorts as positive sell-in data offsets diminishing scale and declining services revenues.” This can only mean that the bears will have to start looking back on their arguments for service revenue and looking toward actual sales as a direct representation of the company’s revenue base.
National Bank Financial’s Kris Thompson reiterates an Underperform rating and a $10 price target, projecting $3.9 billion in revenue and a one-cent profit, on sales of perhaps 8.2 millionsmartphones, with 4 million BB10 units.
Citigroup’s Jim Suva reiterates a Sell rating and a $10 price target, projecting $3.31 billion and break-even on the profit line.
Recap of BlackBerry’s Strategic Moves
BlackBerry has released their near-term flagship Z10 smartphone in response to a nearly two year hiatus This phone ushered in the BB10 era, casting all doubt about the company’s disintegration asunder. Shortly after the Z10 landed across the globe, the Q10 was released and R5 announced. These phones target a specific set of consumers that mimics a strategy used by BlackBerry in the past; using aggressive price points to target specific market sectors.
Alongside their aggressive product launch strategy, BlackBerry has refocused efforts on Enterprise management and BYOD solutions using BlackBerry Enterprise Server 10 (now 10.1) and establishing many aspets within BES 10.1 such as secure workspace for Android and Apple, push technology for BES, support for IBM worklight (amongst other platforms), and a renewed dedication toward government agencies in North America and abroad.
Whether or not these efforts have been successful in renewing interest remains to be seen, but one can only assume their strategy will echo their successes or failures on June 28th.
Growing Expectations
Currently, The Street has modeled a $3.38 billion in revenue and a 5-cent profit, but many predict that sales of recently introduced BlackBerry 10-based smartphones, the Z10 and the Q10, may produce upside. In summary, the revenue model for the quarter represents a swing of $2 – $4 billion in profit from sales, anywhere from 2 million to 4 million BlackBerry 10 units sold, and a profit anywhere from “break even” to $0.09 cents a share. There is really no concrete evidence to support any of these claims aside from several supply checks – that I’ve reported on (here, here, and here) – that indicate heavy variance; a variance that is supported by the person reporting each individual finding.
Many are calling for BlackBerry to release their new devices and are waiting to gauge company success with execution of these launches and insight on sales and revenue schemes. BlackBerry is a difficult brand to understand, primarily due to their revenue structure, their enterprise business and their global market spectrum.
BlackBerry is certainly a company that has drawn both sides of the argument with every aspect of the company. BlackBerry 10 has yet to prove itself in the open market, but what also remains to be seen is how this data will either promote growth or stifle it in the coming months.
Ahead of earnings tomorrow, BBRY is trading down $14.85 -$0.06 (-0.40%) at the time of this post.