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Last week, BlackBerry (NASDAQ:BBRY) released its long awaited fourth quarter earnings. Prior to the earnings call, I made some bold predictions in a previous article and I am now ready to eat some humble pie. Well a slice of humble pie anyway. Overall I am happy with the results, even though I was expecting more device sales given the previous statements BlackBerry CEO Thorsten Heins made.

The importance of this article is to evaluate if BlackBerry is on the right path and to tweak our expectations. For completeness, the previous estimates are tabulated below.

Min Needed

Target

Record High

Record Low

ASP

$300

$350

$371

$206

Sales (CAD)

0.8M

1M

1.3M

0.1M

Sales (UK)

1.5M

2M

1.8M

0.3M

Sales (Other)

7M

10M

8.7M

0.5M

EPS (quarter)

-0.10 (consensus)

0.08

-

-

The sales estimates were for all devices including BB7 and Playbooks as BlackBerry does not break out the results in the financial statements. The spreadsheet below is the tabulated results for all BlackBerry's fiscal quarters in the past few years.

(click to enlarge)

For the devices sold, this is where the estimates were off. The total amount of devices estimated to be sold were 9.3 million, compared to the actual amount of 6.4 million devices for the quarter. There appeared to be a drastic pullback in the older BB7 devices being sold compared to the previous quarter. Even though Thorsten Heins stated that all the supply channels are being emptied, it appears that device sales in Canada and the UK have slowed down. With a total sales of 1 million devices for the new Z10, device adoption will go through a ramp up process. The present theory is that customers are waiting for the new Q10 physical keyboard device before they make a final decision. With six devices in total being launched this year, the roll out process will be gradual over time.

The following analysis on average selling price and units sold by country are based in part from the financial tables listed below.

(click to enlarge)

Financials year end 2013

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(click to enlarge)

(click to enlarge)

Average selling price

The ASP for the quarter was $256 per device. This includes all hardware devices (BB7 and playbooks) sold globally. The previous quarter had an ASP of $226, and was hampered by lack of new devices. Given that 1 million Z10 devices were sold, an ASP for the Z10 is $420. This exceeds all estimates and is vital in the road to recovery.

Devices Sold

The regional breakdown has changed from the previous financial statements, but the previous regions were still used for comparison purposes. The device sales by country are:

  1. Canada 0.5M
  2. UK 0.8M
  3. US 0.9M
  4. Other 4.2M

There is not enough information to differentiate the device sales from the new Z10. With 1 million Z10 devices sold worldwide, it is reasonable to assume that half the device sales in Canada and the UK were from the older platforms.

Earnings per share

The consensus was that BlackBerry would have a loss for the quarter ($ -0.28 per share). Due to the high ASP for the new Z10, BlackBerry turned a profit of $0.22 per share. The guidance for next quarter is to break even, but with a high ASP, it is very likely a profit will be obtained for Q1 2014. A 50% increase in marketing is being forecasted with the guidance, which equates to approximately $750 million budgeted total.

The table below summarizes the results in comparison to the previous estimates.

Min Needed

Target

Actual

ASP - All

$300

$350

$256

ASP - Z10

$420

Sales

0.8M

1M

0.5M

Sales (UK)

1.5M

2M

0.8M

Sales (Other)

7M

10M

4.2M

Sales (US)

0.9M

EPS (quarter)

-0.28 (consensus)

0.08

0.22

Valuation

There has been a lot of speculation on the share price and what it is worth. While I am not going to do a full valuation, I feel it is important to highlight a few details from the financial year-end statements.

Intangible assets were comprised of the following:

(click to enlarge)

The intangible assets (patents etc.) have a net book value of $3.4 billion, and this includes the 6,000 Nortel patents that were purchased by the technology consortium.

Cash on hand is approximately $2.9 billion and there is no current debt.

With a current market cap of $8 billion, the patents and cash account for $6.3 billion. The value for the remaining parts of BlackBerry's business must be valued higher than $1.7 billion. I acknowledge this is an oversimplified look at valuation but it illustrates how the shares are very undervalued.

The release of the Q10 and the US Z10 results in approximately 80 days will play a large part in the share price. It appears the share price will gradually climb over the next 6 months due to the phased rollout, excluding any surprises.

Source: BlackBerry: More Hard Work Ahead