The makeover that BlackBerry (NASDAQ:BBRY) had begun in January this year had its first checkpoint in March end when the company announced its quarterly results. The company had announced launch of its new operating system, BlackBerry 10, in January, and also changed its name to from Research In Motion to BlackBerry Limited.
Fourth Quarter Results
BlackBerry had reported revenue of $2.7 billion, down $49 million or 2% from the previous quarter. The analyst's estimates for the revenue was $2.82 billion. However, although the company missed revenue consensus estimates, it completely surprised analysts with its earnings. BlackBerry earned $98 million, or 19 cents a share, compared with a loss of $125 million, or 24 cents a share, a year earlier. And if the results were adjusted for restructuring and other one-time items, the company earned 22 cents a share. Some of the analysts were expecting negative earnings.
Then again, the company also said that its subscriber base had gone down by 3 million. The company said that its subscriber base was 76 million, down from 79 million in the previous quarter. BlackBerry had sold approximately 7 million new devices, 1 million of which were new Z-10 phones. Also, the company said that according to its estimates 55 percent of the buyers of the Z10 were coming from other platforms. So to summarize, the company announced lower revenues, higher than expected earnings and a minimal loss of subscriber base. The results seem confusing. And this was also reflected in how the stock behaved. It initially went up by 6% and then ended the day 1% lower. Let's take a look at the business of the company to try and understand what may be in store for the future of the company.
BlackBerry designs and manufactures high-end smartphones that had once become a commonplace with all office goers and professionals. BlackBerry, along with generating revenues through sale of phones, also makes money by providing various services such as its push email service access and its proprietary BlackBerry messenger service. In the results announced in the previous quarter, it had generated 61% of the revenues from hardware, 36% from services and 3% from software and other sources. It is important to remember that the services segment of the company actually has much higher margins for the company as compared to the hardware segment.
It is also worthwhile to note that the company had once come out with a BlackBerry Playbook which had not done well. and the company had to slash prices due to competition. After the launch of its next phone Q-10 in the next few months, there are reports that BlackBerry is also going to come out with BlackBerry L - a new tablet that is going to use the new BlackBerry 10 operating system. In fact, there are rumors that the company is already in advanced stages to roll out at least two more new smartphones early next year. Thus, BlackBerry has a lot riding on the success of its new BlackBerry 10 OS. A brief look at how its competitors are planning their strategies will tell us if BlackBerry is ahead of the game or not.
As mentioned, the service segment of the company has the highest margins for BlackBerry, mainly because the company has been able to charge a premium for its services. However, Apple (NASDAQ:AAPL) has come up with similar services that directly compete with BlackBerry's popular services. Even Google (NASDAQ:GOOG) with its open source Android operating system has been able to offer similar services and applications that replicate BlackBerry's services. Thus, BlackBerry's service revenues and margins will slowly start coming under intense pressure. In fact, there are unconfirmed reports that Apple is planning to deviate from its one-device-per-year approach and is coming out with three new phones this year. If true, it would be a sign that the company is no longer confident that it may have enough features to differentiate its product from other competitors.
Other developments in the market are that Samsung (OTC:SSNLF) is ready to come out with its own new operating system, thus not using Android across all its smartphones - as has been the case till now. Thus, even the market leaders in this segment are facing uncertainties and are taking pre-emptive actions. Another company, which like BlackBerry was once a market leader and has been trying to re-invent itself, is Nokia (NYSE:NOK). Nokia is banking on the success of its new phone Lumia. Nokia has tied up with Microsoft and is offering Windows Phone 8 in its new phones. The main thing I want to point out is that the likes of Apple and Google have very diversified business which is not only offering them safety against volatility, but both companies have been able to target a wide range of customers because of this. For example, Apple along with iPhones and PCs, also sells iPads, iPods and a wide variety of accessories. However, this is not the case with both Nokia and BlackBerry, and both companies are primarily banking on their phones' success to drive their businesses.
As I understand BlackBerry's business, it seems to me that for the company, it is still a case of trying to survive in this intensely competitive market rather than growing. Though BlackBerry released positive earnings, it had more to do with the company implementing cost cutting measures rather than good performance, as shown by the decline in revenues. For an investor with high risk appetite, there are many other stocks in the market that they may invest in. For an investor looking for safe investment, BlackBerry certainly does not provide assurances over growth in value. One should wait till the year end to see how the product roll outs for Apple, Samsung and BlackBerry itself performs, before thinking of investing in the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.