Research In Backward Motion

Dec.15.11 | About: BlackBerry Ltd. (BBRY)

Research in Motion (RIMM) issued its third quarter earnings report after the bell, and the numbers were mixed. Here are the highlights:

  • Revenues of $5.22 billion, slightly below the $5.27 billion that was expected.
  • Adjust net income of $1.27 handily beats estimates of $1.19.
  • BlackBerry shipments of 14.1 million units, down from 14.2 million in last year's period.
  • Cash and investments of $1.5 billion, compared to $2.5 billion a year ago.

But again, it's the future that is bleak, and that's taking the stock down in after hours. Here was the guidance.

  • Revenues in a range of $4.6 billion to $4.9 billion. Current analyst estimates are for $5.12 billion.
  • Earnings per share in a range of $0.80 to $0.95. Current analyst estimates are for $1.18.
  • Gross Margins are expected to be 38%. Last year's 4th quarter gross margins were 44.2%.

So what does this guidance mean? Well, before the guidance, analysts were expecting year over year revenues to decline by 2.5%. Now, we are looking at a decline of 3.7% to 5.2%. Earnings per share came in last year at $6.34. Now we are looking at a range of $4.16 to $4.31. That's a drop of about a third. Just 90 days ago, analysts were expecting $5.10. Going into this report, it was down to $4.46

Now looking forward, analyst have been cutting RIMM estimates continuously for the past few months. Thanks to this report, they will now be cutting them even more. Just 90 days ago, analysts were expecting about $5.20 for the 2012 fiscal year (ending Feb. 2013). That number is currently down to $3.91, and I'm guessing it is about to go even lower. RIMM's revenue numbers are expected to be down 1.8% currently for the next fiscal year. I think it's a safe bet that within a few weeks, you'll see predictions for down 2% or more.

So what should you do now? Well, Research in Motion is not doing well. It is clear that Apple (AAPL) is the leader in this industry. Some may argue that RIMM's trailing P/E of under 3 means it is cheap, but if the earnings drop to, say, $3.00 in the next fiscal year (where it looks like they are heading), a trailing P/E of 3 gives you a $9 stock. That is significantly below where we are now.

I don't think anyone was expecting great news here, and if you are surprised by this, you apparently have not been watching this company lately. This company has continued to disappoint, which is why shares keep hitting new lows. If you want to invest in a smartphone or tablet maker, go with Apple. It's the smart decision.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.