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BlackBerry (BBRY) is expected to report its Q1 FY 2014 results on June 28. Having been left behind in the smartphone race by the current leaders Samsung (OTC:SSNLF) and Apple (AAPL), BlackBerry is looking to stage a comeback with its newly launched BB10 handsets. The Canadian handset maker made good progress on its BB10 rollout in Q1, bringing new BB10 smartphones to the U.S. market as well as launching its first QWERTY-based BB10 handset, the Q10. It also released a mid-range QWERTY option in Q5, which will make its way to emerging markets in the coming months.

However, despite seeing strong support from carriers around the world, it is still highly uncertain if the marketing campaign is translating into hard numbers or not. As a result, BlackBerry's stock has been highly volatile in the past three months, fuelled by intense speculation about BB10's reception in key markets. The Q1 results, which will mark the first full quarter of BB10 sales, will for the first time provide the markets with a sense of where BB10 could take BlackBerry in the coming years. Along with smartphone sales figures, we will be closely watching BlackBerry's gross margins, which should have seen an improvement over last year on the back of the high-end launches. Also, with none of the high-profile launches made so far expected to make a dent in the emerging markets, it will be interesting to see the extent to which BlackBerry's subscriber numbers take a beating this quarter.

How Big Will BlackBerry's Subscriber Loss Be?

Last quarter was a bit of a mixed bag for BlackBerry as the company turned in decent numbers for BB10 sales but continued to bleed subscribers due to the lack of a low-end BB10 handset. The company shipped a million of the high-end Z10 handsets, boosting margins and almost breaking even at the operational level. However, it continued to lose more subscribers than it could add, especially in the emerging markets where the BB7-based Curve handsets are getting outdated and in need of a major refresh. The company lost as many as 3 million subscribers last quarter, three times the subscriber losses of the previous quarter.

The issue wasn't addressed in Q1, with the company launching only the high-end QWERTY-based Q10 handset during the quarter. Being a much-awaited phone, the Q10 may have seen many BlackBerry fans upgrade or switch over from rival platforms, but is likely to not have seen many buyers in the emerging markets. This could see BlackBerry losing subscribers for the third quarter in a row, offset to an extent by developed market gains. The extent of the decline would shed some light on whether BB10 has managed to win customers in developed markets from rival platforms or is seeing mostly existing subscribers upgrade. It will also be interesting to know if the three remaining launches scheduled for this year will target emerging markets or are focused on only the high end.

Cash Flows May Take a Hit Despite Profit

After last quarter's much-improved financial performance (despite BB10 selling for only a third of the quarter), it seems likely that BlackBerry will be back in the black in Q1 with the BB10 gaining momentum. However, this may not be reflected in the cash flow this quarter as the company meets working capital requirements as well as spends on marketing and promotions to support the new launches. In its guidance, BlackBerry had said that its marketing spend could increase by 50% in Q1.

The coming quarters are going to be key to BlackBerry's chances of surviving in a fiercely competitive industry as it launches lower priced models for the emerging markets. A lot depends on BB10's ability to attract customers from other platforms while retaining its own subscriber base. But it faces an increasingly uphill battle against the well-entrenched mobile ecosystems of the iOS and Android that are steadily making their way into the enterprise market as well. BlackBerry's mobile market share has plummeted from over 3% in 2011 to less than 2% in 2012. Keeping in mind the uncertainty surrounding BlackBerry's future position in the smartphone market, we have a $13.50 price estimate for the company. Although we do not expect BlackBerry to ever reach the heights it once commanded in the smartphone market, if it manages to take its market share back to over 3% by the end of our forecast period, there could be a 30% upside to our price estimate.

Disclosure: No positions.

Source: BlackBerry's Stock Jitters Can Gain Some Direction With Earnings