Why Blackberry's 3 Million Subscriber Loss May Actually Be Good News

| About: BlackBerry Ltd. (BBRY)

Blackberry (NASDAQ:BBRY) bulls and bears settled in a tie in wake of Thursday's fourth quarter 2013 fiscal year earnings with stock price changing less than 1%. Blackberry came out with both good and bad news, but we'll zero in on the issue that investors seem to take issue most with, particularly the 3 million subscriber loss from 79 million to 76 million.

3 million subscribers

The most enjoyable tidbit of information during the conference call for Blackberry shorts was concerning the fact that Blackberry had lost 3 million subscribers over the last quarter. Losing subscribers is hard to view in a positive light, but if we take a closer look at the situation, it ain't all that bad.

Why It Happened

Blackberry's 4th quarter runs from December 2nd, 2012 until March 2nd, 2013. It was approximately during the beginning of this period when the Blackberry 10 platform started to receive hype and gaining traction about a return to relevance in the mobile industry. With a brand new CEO running the helm, rumors of a completely re-engineered software platform with brand new devices, it would be easy to see why consumers weren't exactly pulling Blackberry Bolds and Curves off of store shelves. If you were a Blackberry loyalist about to purchase a new Blackberry, you'd be willing to wait a couple of extra months to see the best of what Research in Motion had to offer. As such, it wouldn't be too much of a stretch to say that many customers spent the previous quarter simply waiting for the new Blackberry 10 devices to roll out.

The thing is, with a product launch date deep into their quarter (February 5th), Blackberry has had less than a month to sell their new devices. Widespread stock outs from pent-up demand as well as the fact that it wasn't yet available in all markets worldwide thus caused the subscriber base to fall.

Why It's Good News

The best-case future isn't consumers snatching up old Blackberry 7 or even the BB6 devices; it's them using the Blackberry 10 platform, a more secure and integrated technology and more importantly, utilizes the phones that bring in a larger profit margin.

Blackberry took a massive facelift when it hired Thorsten Heins, and the jump from the older Blackberry 7 devices to the newer BB10 platform is revolutionary. So unlike Apple (NASDAQ:AAPL) which is able to benefit when consumers purchase older models like the iPhone 4S phones, Blackberry doesn't. The older devices are a below average product to say the best, and users purchasing those devices will be extremely dissatisfied and likely to switch to an iPhone or Android when they find out they've purchased an inferior product. The future of Blackberry lies with the Q10 and Z10 devices because they are the best phones in the world right now. You don't want to just sell a crappy product and make money; you want to sell the best product that you have and make money because your customers will keep coming back for more.

Going Forward

Blackberry will again face a similar situation with respect to the launch of the Q10, as that device is expected to be on store shelves sometime in April, which is a good chunk into the Blackberry's current (Q1 2014) fiscal period. Being that a large number of business professionals users prefer to use a device with a physical keyboard, the spike in subscriber base will likely come in second quarter of Blackberry's 2014 fiscal year, when they'll get the opportunity to showcase their full repertoire of products and possibly much more for a full fiscal quarter. This spike will only be accentuated further by the fact that the Q10 will likely be more successful than the Z10, especially when comparing the cutthroat competition of the touchscreen keyboard segment to the physical keyboard market segment, where Blackberry is essentially the king of the industry.

Bottom Line

Investors will have to be patient to see the full fruits of the Blackberry's turnaround. The fall in subscriber base was caused by users waiting for the new devices to be released, and this should be viewed in a positive light because Blackberry's older devices are not only an inferior product, but have smaller profit margins.

Large gains will be awaiting when Blackberry's Q10 is released, and in my opinion will sell much more successfully than the Z10 because competition is less fierce in the physical keyboard segment. Give Blackberry a chance to showcase everything they have for a full quarter, and you're not going to be disappointed.

Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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