Normally when a company posts an awful earnings report, the stock price plummets. On Friday morning BlackBerry (NASDAQ:BBRY) posted terrible quarterly financial results, they were even worse than analysts expected-- which wasn't very much to begin with. But when the market opened something funny happened. The price of shares skyrocketed up over 15%. Why?
The table above shows BlackBerry's reported earnings per share over the past 2 years alongside the Wall Street expectations and the consensus from buy side and independent analysts at Estimize. BlackBerry has experienced year over year decline in 7 of the past 8 quarters.
The loss that BlackBerry reported was staggering. BlackBerry lost 67c per share this quarter. The sell side consensus from Wall Street was expecting a loss of 46c per share and the 26 buy side and independent analysts that contributed to Estimize were expecting a loss of 48c per share.
Typically, when a company posts better than expected earnings the stock price drifts up and when they miss the analysts' consensus the stock price goes down. This graph from ChartIQ - Visual Earnings shows that over the past 4 quarters BBRY has behaved exactly how you would expect it to, just not Friday. Green bars below the chart represent quarters where the company's fundamentals exceeded analyst expectations, red bars mean the opposite. In each period after exceeding analyst expectations BlackBerry's stock went up, on quarters where they missed analysts' targets the price went down. If you look all the way to the right of the graph you can see Friday's results, BlackBerry severely missed the earnings expectations from Wall Street and Estimize but the stock price still flourished.
Much of the investor optimism surrounding BlackBerry has to do with recently appointed CEO John Chen. While the company's fundamentals are slipping further and further into the red, Chen laid out a plan this morning to turn that trend around.
The biggest piece of good news this morning was a 5 year design and manufacturing deal with Taiwan based mobile giants Foxconn (OTC:FXCOF). In recent years BlackBerry has been getting dominated in the consumer market by Apple's (NASDAQ:AAPL) iPhone and mobile devices that run on Google's (NASDAQ:GOOG) Android operating system. For years Foxconn has been the primary producer of iPads and iPhones for Apple. Chen's plan may not only help BlackBerry contain costs, but it could also put the company back on track in the consumer market. Investors are hoping that Foxconn will enable BlackBerry to produce phones more cheaply and start to turn a profit again soon. Mr. Chen also unveiled that Foxconn will design low end and mainstream smartphones while the BlackBerry team focuses on designing higher end models. BlackBerry is planning on targeting Indonesia and other emerging markets with the consumer-focused phones. In Chen's roadmap for the company he projects that losses will cease 5 quarters from now.
In addition to bolstering the hardware business, Chen has vowed to protect and expand the enterprise software and security business which has been the crown jewel for BlackBerry lately. BlackBerry phones are used by many government and financial institutions because the phones are more secure than competitors'. BlackBerry sees itself as the go to end to end enterprise mobile security solution for the foreseeable future, although that piece of the business has also been under attack recently. BBRY has also recently rolled out the BlackBerry Messenger (BBM) application to Samsung and iPhone customers and claims over 40 million new users are using the communication app.
If we look out into the future it's clear that the Wall Street consensus is not expecting BlackBerry to become profitable as soon as Chen says they will. But the 15% stock price jump on Friday gave a pretty clear indication that investors have confidence in the new boss and his plan to turn things around.
Disclosure: No positions