Shares of BlackBerry (BBRY) gave up earlier gains as today’s session ground on following a fiscal Q4 report of lower-than-expected revenue, a surprise profit, and an outlook for this quarter’s net income to possibly break even despite spending 50% more on marketing to promote the company’s new BB10-based handsets.
The stock is closed down 12 cents, or 0.8%, at $14.45, and were up 4 cents in late trading.
On a conference call following the report, CEO Thorsten Heins said that “initial early global demand for BES 10 has been better than anticipated,” referring to the company’s software for managing different kinds of mobile devices in enterprise, including Apple‘s (AAPL) iPhone and Google (GOOG) Android-based devices.
When asked about how much of the BlackBerry subscriber base would move to new devices, Heins emphasized the arrival in May of the “Q10,” which has a hardware keyboard:
Going into the installed base, if you’re kind of recalling the segmentation of BlackBerry versus QWERTY versus full touch devises we are very strong in QWERTY. That’s why we are excited to have already more than 40 carriers testing the Q10 which then actually will go strongly into that existing BlackBerry base so we are all looking forward to launch Q10 globally and addressing that market segment even stronger and I think this will just yield another good opportunity for us to increase numbers of units and revenues.
Analysts reviewing the results have concluded that the 6 million handset units was lower than they were thinking, marked by lower sales of older BlackBerry 6 and 7 handsets, but higher sales of the recently introduced Z10 than previously expected. The company’s subscriber base declined from 79 million in the prior quarter to 76 million. Some estimates are going up, including losses swinging to profit for fiscal 2014.
CNBC‘s Carlos Quintanilla hosted a bear this morning, Kris Thompson of National Bank Financial, who has an Underperform rating on the shares and a $10 price target. Said Thompson,
It’s hard to suggest investors take a long term hold in stock because we don’t ultimately think Z10 is going to be that successful. Look at the math: the subscribers declined by 3 million, they shipped about 5 million of the BB7 devices, so if you look at the math, that means they lost about 8 million of their old BB6 and 7 subscribers. That makes sense if they have about, call it 60 million consumer subs, with the average contract length being two years, you’d expect over two years you’d have about 8 million per quarter maturing, so I do think you’re going to have number falling further as the old platform becomes more and more stale.
Not to be outdone, Bloomberg featured bear Colin Gillis of BGC Capital Partners, who emphasized that the 1 million BB10 shipments weren’t all sell-through. The anchors put up on screen Gillis’s haiku: “Pay heed to channel, inventory increasing and not selling through.”
Other analysts this morning are highlighting a mix of good and bad:
Bullish!
Pierre Ferragu, Bernstein Research: Reiterates an Outperform rating and a $22 price target. “Launch momentum will likely remain very strong in the next 3 months and possibly beyond. Major European countries like France, marketing campaigns haven�t started yet and can be a source of additional traction. We also expect very strong distribution support from Verizon coming in imminently, while the uncertain debuts at AT&T will be followed by much more distribution support. Lastly, major markets in Asia (Hong Kong, China) still have to be addressed and are likely to be added in the coming months. Moreover, we have multiple indications of a strong interest for the Q10, largely superior to interest demonstrated for its predecessor [�] Over half the buyers of the new Blackberry abandoned another platform (Apple or Android in the vast majority of cases), which means that very little of Blackberry�s own user base has been tapped so far. Secondly, and most importantly, the corporate refresh cycle hasn�t even started yet. We believe corporate users will take longer to come to the new platform, likely offering shipment support beyond the next quarter [�] This quarter and guidance given for the next quarter largely supports the idea that there will be resilience in Service revenues, at least in the near term [�] How the launch of Blackberry 10 can change the fate of the company remains unclear, but we maintain a high level of conviction that the stock doesn�t reflect yet the 12 months perspective described above.
Peter Misek, Jefferies & Co: Reiterates a Buy rating, and raises his price target to $22 from 19.50. “GM and EPS dramatically exceeded St expectations as we believe the margins and ASPs of the new BB10 phones were underappreciated. FQ1 (May) guidance of approaching breakeven is above St’s $(0.11), but we feel it is conservative (Jef $0.33). We continue to see large upside to consensus May and Aug Q consensus ests and that BBRY’s MDM opportunity is under appreciated [�] The focus on shipment number miss is bizarre as they make No money on the BB7 handsets so the fact they didn�t sell as much is actually a very good thing. Lastly the fact their operating cash flow was positive and is forecast to be positive means there is NO inventory in the channel. Or simply put they are selling every BB10 handset they make. Why? Because if they didn�t working capital would go higher significantly depressing cashflow. The short sellers are massively involved right now doing everything they can to keep stock down because if they don�t you could have a melt up and they lose money a lot of money.” Misek raised his fiscal 2014 estimate o $15.76 billion and $1.44 per share from a prior $14.89 billion and 11 cents.
Maynard Um, Wells Fargo: Reiterates an Outperform rating. “BBRY gross margin materially beats driving profitable quarter; guidance better than expected [�] Z10 units of 1 million were slightly lower than our 1.5mn forecast while BB7 units were in line with our 5mn forecast. With gross margin of 40%, this suggests Z10 gross margins are higher than our 27% estimate (or BB7 gross margin are not as loss making) [�] The company expects a lower cost base, more efficient supply chain, and improved hardware margins and a 50% sequential increase in marketing spending to result in breakeven earnings FQ1 2014 (Wells Fargo estimate for a loss of $0.07; consensus loss of $0.13). We expect Consensus estimates to increase and, on our initial take, believe the outlook could be conservative on an implied Z10 unit shipment.”
Bearish!
Mark Sue, RBC Capital Markets: Reiterates a Sector Perform rating and an $18 price target. “The concerning point for BlackBerry is the sharp erosion in its subscriber-base, down 3M to 76M, implying the world�s moving on as Blackberry tries to reverse its market-share loss. Encouragingly, the Z10′s holding in with 3/4 of its 1M units now sold through the channel. With cost reduction in older products and the BB10 ASP lift, GMs may hold at new found levels of ~41%. However, flow-through to earnings remains limited as Blackberry will amp marketing efforts to push new devices, implying it may see little near-term earnings. Considering the push-and-takes with news-flow, which seems to change on a weekly basis, an investment in Blackberry is not for the faint-hearted.” Sue cut his fiscal 2014 revenue estimate to $11.7 billion from a prior $12.4 billion, but improved his profit outlook to negative 4 cents from a 58-cent loss previously estimate. He raised his BB10 device estimate for this year to 10.7 million units from a prior 10-million estimate.
Mark Sue, RBC Capital Markets: Reiterates a Sector Perform rating and an $18 price target. “The concerning point for BlackBerry is the sharp erosion in its subscriber-base, down 3M to 76M, implying the world�s moving on as Blackberry tries to reverse its market-share loss. Encouragingly, the Z10′s holding in with 3/4 of its 1M units now sold through the channel. With cost reduction in older products and the BB10 ASP lift, GMs may hold at new found levels of ~41%. However, flow-through to earnings remains limited as Blackberry will amp marketing efforts to push new devices, implying it may see little near-term earnings. Considering the push-and-takes with news-flow, which seems to change on a weekly basis, an investment in Blackberry is not for the faint-hearted.” Sue cut his fiscal 2014 revenue estimate to $11.7 billion from a prior $12.4 billion, but improved his profit outlook to negative 4 cents from a 58-cent loss previously estimate. He raised his BB10 device estimate for this year to 10.7 million units from a prior 10-million estimate.
Shaw Wu, Sterne Agee: Reiterates a Neutral rating on the shares. “BBRY reported a surprisingly strong Feb. quarter where it returned to profitability much sooner than expected. This was driven by a big gross margin upside from cost reductions and 1 mm BB10 shipments. However, its cash balance declined by $63 million and subscriber base by 3 million. The key takeaway is that BBRY is here to stay with stabilization in its business and balance sheet. The key question remains whether the company can maintain momentum within an increasingly AAPL and GOOG world.” Wu raised his estimate for this fiscal year to $13.2 billion and a 45-cent profit from $12.1 billion and a 29-cent loss.
Simona Jankowski, Goldman Sachs: Reiterates a Neutral rating on the shares. The 22-cent profit beat her 23-cent loss expectation, while shipments of 1 million BB10 devices beat her 650,000-unit estimate, while the total unit shipment of 6 million was below her 8.2 million estimate.
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