BlackBerry Outselling the iPhone5 and the Galaxy S3 in the UK's Largest Retail Store and Crushing them in Business Sales
Given last week's slew of misleading headlines and remarks concerning sales of the (BBRY) BlackBerry Z10, I had to embark on a final round of channel checking in freezing London weather. If you have sold short shares of BlackBerry in anticipation of a disaster, I suggest you enjoy the 'flow' of this article. Alternatively you may want to 'peak' forward to the section titled "My UK Carriers Business Tele Sales Team" in anticipation of reading this before your other short selling fellows read it. I believe this article will once and for all establish the outstanding success of the Z10's launch in the UK. This article suggests that BlackBerry intends to Pre-Announce this before 'Mid-March' Peak to section titled "Beware of the Ides of March." Please don't call Forbes Magazine again for help, it's getting so boring…
Methodology: I zeroed in on store managers whenever possible. My opening statement was along these lines:
"I write a financial blog about BlackBerry that people follow. I'm not sure if you know this but people have bet somewhere in the region of $2 billion that BlackBerry is going to go out of business. These people are losing a lot of money on this bet, and they are very scared. These Wall Street types have, with the help of certain friends in the media, spun the following headlines last week:
BlackBerry: U.S. Carriers Not Hopeful On Z10, Analyst Says
- (That's just the opinion of a somewhat obscure analyst firm, which was then repeated through FORBES, and took $1 off BBRY)
The main arguments are the following:
- Opening sales were sold out due to shortages;
- There was little follow up buying;
- Sales are falling off a cliff, 'slumping';
- Only 300K units will ship in February;
So what part of all that is true and please be honest as people may buy or sell shares based on this?"
Findings- Great Brands Die Hard
Some bullish analysts who have tried to back into the first month BlackBerry sales numbers are using the installed base figure 80,000,000 current users.
I believe this to be categorically wrong. My research leads me to believe that most of the users buying the Z10 were hardcore BlackBerry fans, but many of these fans had moved to iPhone or Android out of desperation. The number of people that have been used a BlackBerry over the last decade is a multiple of 80 million, particularly as many of these phones were given away free by businesses.
While it is perfectly true that up to 50% of BlackBerry Z10 buyers are coming from Android or iPhone, I believe these are people who had been touched by the brand at some point in their lives and had moved to iPhone or Android due to the stalled innovation.
Many of these users are currently in contract and they represent the brunt of the traffic looking to buy the phone off contract [sim-free] from the UK retailers. It is as much of a testimonial to tiredness of the iPhone OS and the Android experience as it is the pull of fresh, tried and true brand experience represented by BlackBerry. They cannot wait to return to BlackBerry and are willing to pay full price for it. This is why retailers have increased the price of the handset.
When you hear that many of these Z10 buyers are coming from Android or iPhones (around 50%, see here and confirmed by CEO Thorsten Heins) these are people that were at some point in their lives affected by the brand, and they represented the ex-BlackBerry users not accounted for in the 80 million current subs and returning to the brand. These people want to switch back immediately, and only the retailers offer them that possibility.
Understanding this differences is critical as I believe it is the reason behind the difference in sales rates between the mobile carrier stores that tend to only sell under contract [1 Z10 for 4-5 iPhone 5s], and the UK high street retailers (either 50/50 or even Z10 flat outselling iPhone 5 and S3, see below). BlackBerry buyers will simply not sign two contracts to acquire the Z10 but prefer the pain of shelling out 550GBP. These buyers will simply not wait until the end of their contracts to return to this brand.
Alas you might have guessed, I have taken copious and precise research notes. To prove the veracity of the statements here and below, I will be happy to share this information with an analyst at a bank whose coverage has been positive of BBRY.
Recap by Location Visited
Largest Retail Location in the UK for Sale of Mobile Handsets
I went straight to someone managing the desk and asked the basic question: 'People have put a rumor out that says sales of BlackBerries have plummeted since they launched.' The general response was along the following lines:
- This is the leading location for sales of Z10s in the UK
- Regarding the launch of the Z10, it has been comparable to the launch of a new iPhone, and he cockily smiled back, 'so no' (evidently refuting the allegations of sales slumping the made last week), they were selling "loads."
- They have had plenty of stock; only one or two stock outs;
- [Most important note here is that it is still selling well, just less than it did the first two days which is perfectly normal]
- I pushed again for clarity on the question of whether the sales had tapered off and the response I got was unequivocal and along the lines of "we can't keep them in, they go out straightaway [current sales pace]"
- Most sales are off-contract (8 out of 10), most of these sales are for people buying them for themselves, he has to do the data transfers etc, others are to foreigners.
- Most people are BlackBerry buyers trading up.
- The Z10s outsells the iPhones and S3 here; though no figures provided, this was beyond any doubt.
Visit 2: Retailer
- iPhone5 outsells Z10s 2 to 1 here
- They sell 5-6 contracts per day, and 15 off contract per day
Has there been a recent sales slump?
- To which he answered that they have someone coming in every 5 to 10 minutes asking if the Z10 is in stock. That's a no.
Visit 3: Retailer
Are people buying it?
- There was tons of hype at first; people wanted to buy off contract.
- They sold out launch, as this store did not have large stock day one.
- They are currently sold out and therefore losing sales
- Currently selling Z10s at 5-10 per day, but weekly rate is less, 30 Z10s, due to shortage of stock.
- This compares to 80 iPhones per week in this location people are walking in and walking out if there is no stock. [note: we can assume that with correct supply they would be selling 50% rate of the iPhone5 in this location]
- Rate here is 3 Z10s to 8 iPhones 5, but salesman suggested it would 2 to 1 if they had adequate stock
On a side note he told me that you know a phone is selling very well when it's strictly sold on contract and they stop selling it outright. It's a strategy for them to throttle supply. Off contract prices rose recently because retailers needed to make better margins to make up for the lost contract sales. [note: this is exactly what has been happening to the Z10]
Visit 4: Mobile Carrier
- Going so so, just people who are really BlackBerry users wanted it
- Difficult to push to newcomers who come in looking for iPhone.
- Sales had not died off over time and they did sell quite a lot.
(My impression is this retailer has more of an iPhone bent and their sales staff are just not that motivated to sell Z10.)
- The manager was very critical of BlackBerry as he felt they had waited too long to come out with a phone, lacked apps, etc. hadn't upgraded servers.
- He said it was "struggling now" but it was a good device;
- He said he expected the new Q10 keyboard will have a surge in demand and will be the comeback.
- Generally not positive in this store; maybe a fervent Apple (AAPL) user or just anti-Blackberry person?
Visit 5: Retailer
- It's an absolutely fantastic handset and it's 'flying of the shelves'
- Sales have quieted since launch as it's more available elsewhere but he had no problem moving stock, none.
- Compared to iPhone sales: He can sell 60 to 100 Blackberry's per day vs 15 to 20 iPhones [Note: Z10 is out selling iPhone 4 to 1 here because iPhone5 sales are only on contract in this location]
- He did note many are foreigners who are buying it but also many are simply buying because they want the handset but they are stuck on contract.
- Though sales had quieted down from initial launch, they were still running at a very good pace.
Visit 6: Retailer
This manager refused to speak in detail and was defensive about numbers, but I gave him my intro and recounted what the street was saying.
When I asked, "Did it go well at launch simply because of pent up demand and is it not selling anymore? / are sales dropping off now?"
He shook his head smiled, laughed at me, self-assuredly: "It's selling well"
So I asked him if I could say on my blog "I walked into a retailer in the UK and he laughed at me when I told him the story." He said "yes."
Note to short investors: Did your analyst, who put you on this trade, do his due diligence properly and come to London to get laughed at by this man?
Visit 7: Mobile Carrier
- His feedback was Blackberry users liked it and early adopters like it, but the bulk of the market has not taken to it yet.
- He is doing high single digits on a good week for Z10 vs 40 iPhones; He does not sell it off contract.
- Foot traffic is very, very low at this store and he said this was not a representative store. He was generally not positive.
- Same brand as Mobile Retailer 4, is there a pattern here?
Visit 8: Mobile Carrier
- Sells on contract only
Same initial story: "Have Z10 sales fallen off / Was it a one hit wonder on the first weekend etc?"
- It did really well when it was first release, very well, and though it has slowed a bit, not in any worrying manner.
- They are still selling. Current ratio to iPhone5 is 1 to 4 and 1 to 5.
- He sees competition coming next week coming from HTC and Sony Xperia and he was interested to see Q10.
- On the whole it has done well and it was a big number [that they sold), and the 300k worldwide estimate for Feb was "shockingly low."
Visit 9: Mobile Carrier
- Sells on contract only
- Also compares to Z10 1 to 4 -5 for iPhone (He had sold 1 iPhone and Z10 that day)
- Mentioned lack of apps did go against Blackberry
- He had not seen demand fall of the cliff;
- He has had stock sell out that caused him to lose sales.
- Weekly sales were Z10: 20-30 per week vs iPhone 5 80
I asked him why the difference between his store and other mobile carrier which had had negative feedback.
- He squarely blamed the sales consultant and training.
Visit 10: Mobile Carrier
- Opening weekend outsold the iPhone
- Still selling very strong, it's very popular.
- Device is great and he hadn't a glimmer of a problem yet [This is one aspect I hear often]
- Ratio of sales? Didn't want to give them.
- The Z10 was going head to head against the iPhone5 and beating it on contract in his store. The Z10's competition came not from iPhone5 but Galaxy S3 and Galaxy S3 mini, both of which were out selling the iPhone 5.
- 2 Galaxy S3s to Z10
This gentleman absolutely hit the nail on the head when told me that he knows how to sell it, his people were properly trained on how to sell it, and that was why they were able to sell it so well.
- He expects Q10 sales to destroy the iPhone5
- He also laughed at me when I asked if sales had fallen off a cliff.
- Mobile Operator Stores that sell only on contract were pretty much running sales at 1 Z10 to 4/5 iPhone5.
- When sold properly by a mobile operator store the Z10 outsold the iPhone, but not the S3.
- In retailers, it can vary from the Z10 outselling the iPhone5 4 to 1, simply outselling the iPhone5, to trailing the iPhone5 2 to 1 and 3 to 8 in one location with shortages.
- Volumes on a daily basis at one retailer was surprising, claiming top store(s) in the area sell between 60-100 per day, bodes very well for sell-through rates.
- There is no shortage of supply nor buyers, especially when sold off contract. Retailers recognized this and hiked up off contract prices.
- There is no indication of a 'slump' in sales. US Analysts have provided a belly full of laughs to UK mobile store managers
- Do you rally want to trust US-based analysts doing channel checks over the phone to these stores? Really?
Peak (here if you are short) 'My UK Carrier's Business Tele Sales Team'
In Monty Python's Meaning of Life there is a great skit where a man who has been fed much too much food and is about to explode, is fed one last, tiny thin little wafer by John Cleese…the sad man then explodes in one of the most remembered comical scenes of that era.
Well, here is a little wafer for those who have sold this company short:
When I got home had to call my carrier's business account team to discuss a billing issue.
My UK Carrier's Business Tele Sales Team
I had to call my carrier to discuss various billing issues, which took about 10 to 15 minutes.
So I asked him about how Z10 was going…. This was my first glimpse into business sales…. Hold onto your seats.
Some business sales guys sell 20 in one shot,
My 'gent' typically sold per week:
- 20-30 Z10
- 6 iPhones 5
- 15-16 Galaxy S3
Z10 is outselling the iPhone 5x 4 in the business environment, and also true as highlighted earlier, the Galaxy S3 is a bigger competitor.
More importantly he told me that they received XX,000 Z10s on Monday and XX,000 on Friday. I do not wish disclose this number so that you cannot work back to and figure out which carrier it was.
Suffice to say it was a very large number and if you back that number out to be 100% of UK Offline Business sales for the top 3 networks you end up with a current pace of 50K units per week for offline business sales ONLY.
To be clear, I am telling you that I believe that 50K units per week is a reasonable number for UK, Offline (ie call center driven / internal upgrades.) This excludes other business sales channels, store /web. It also excludes ALL consumer sales in the UK, it excludes all those retailers mentioned above.
This works out to a run rate of 200K units per month for business offline sales alone!
Analyst expectations on the short side of 300K units become, laughable? You understand why store managers had a belly full of laughs this weekend when I showed up. Even Jefferies, a bull on the stock, has a 500K target for February!
We know BlackBerry upped production significantly. In the German interview, Heins mentioned that the company may have had to up this again. It is therefore fair to expect numbers for February to fork between the 750k low end and the 1M+ range. Again, and I cannot say this enough, a unit shipped is a unit sold and BlackBerry is adding territories everyday.
Enough said, if your short position is advised by some of the analysts that downgraded last week based on that preposterous figure, good luck, I hope you can digest my little, tiny, tidbit wafer of information…
Mystery Surrounding BlackBerry's Delayed US Launch Strategy:
BlackBerry knew they would face incredible amount of negativity in the US. The visit to Carrier Operated Store Visit 4 confirms this. The US is the most advanced Smart Phone market and the one were BlackBerry may have the most negative image of a company going bust, and Americans hate losers.
Blackberry was initially due to launch in the UK, UAE and Canada, its strongest markets. (I believe most analyst forecasts are based on this geographic introduction still today) It snuck in: France, Germany, Italy, Saudi, Lebanon, South Africa, Malaysia, and Singapore. Remember: units shipped are units sold. This has all been one great ploy to sandbag expectations and deliver a massive upside surprise with the full intention of changing the negative discourse in the media. Shed the 'loser' brand image and welcome the "Comeback Story." This is where it gets really fun.
Beware of the Ides Of March
To achieve the above strategy, BlackBerry needs to pre-announce February sales BEFORE the US launches in mid-March. That means if you have short sold this stock, there is a high likelihood that a pre-announcement could come any day between the end of February and ….the ides of March! Oh no! If you doubt me, read Heins's comments yesterday regarding production capacity increases and possible early figure announcements.
Well shorties you can decide who gets to be Caesar and who gets to be Brutus between you; I don't care because you just walked into a blood bath - Caligula style.
"quod erat demonstrandum"
Disclosure: I am long BBRY.