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Sarfaraz A. Khan
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Hi, Im Sarfaraz A. Khan, an independent capital market analyst and a finance writer. I have got an MBA from University of Aberdeen, located in the heart of UK's oil and gas industry. Not surprisingly, my specialties lie in energy stocks, but I also cover consumer goods, services sector,... More
My company:
Half Bridge Business Review
My blog:
Half Bridge Business Review
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  • BlackBerry Earnings: Everything You Should Know

    Prior to the release of its first quarter's results, the short interest in BlackBerry (NASDAQ:BBRY) rose to record levels. According to financial research firm, Markit, on 20th June, the total value of short interest in New York and Toronto was one-third of the smartphone maker's market cap. In fact, short interest in the company has been rising continuously since the beginning of the year.

    (click to enlarge)

    Then on Friday 28th June, BlackBerry shares plummeted by 27.8% as the company released its quarterly results which fell short of analysts' estimates and warned about more losses in the coming quarter. As shares tanked, short sellers profited while Blackberry's market cap dropped from $7.59 billion to $5.48 billion in 24 hours.

    Earnings Miss

    In the fiscal first quarter of 2014, BlackBerry reported a loss of $84 million or $0.16 per share which is a significant improvement from the net loss of $518 million or $0.97 per share recorded in the first quarter of FY-2013. However, the adjusted loss of the company was $67 million or $0.13 per share, significantly worse than market's expectations of a profit of $0.06 per share. Its revenues rose 9.4% year-over-year to $3.07 billion which is also lower than the consensus estimate of $3.4 billion. In short, BlackBerry missed both top and bottom line estimates.

    Drop in income was due to disappointing shipments and a greater than expected drop in the number of subscribers. Some of the loss can be attributed to Venezuela's currency control issues which had a negative impact of $72 million on service revenue and pulled the margins by 2%.

    Its gross margin has risen to 33.9% from 28.0% a year ago while operating loss dropped to $169 million from $635 million in the same quarter last year. Net cash flow from operation was $630 million, a drop from $711 a year ago.

    Falling Shipments

    Its quarterly shipments fell 12.8% Year-over-Year to 6.8 million BlackBerry phones, which include around 2.7 million new BlackBerry 10 models. The numbers of its new hail-Mary phones were a particular disappointment as the markets were expecting BB10 shipments of around 3.6 million and total shipments of 7.5 million units. Playbook shipments also dropped by 61.5% from the same quarter last year to just 100,000 tablets.

    By comparison, for the three months ending March, the shipment of Apple's (NASDAQ:AAPL) iPhone rose by 6.55% year-over-year to 37.4 million units. In the corresponding quarter, shipments of phones powered by Microsoft's (NASDAQ:MSFT) Windows touched 7 million putting it ahead of BlackBerry.

    Subscribers

    Despite launching its much awaited new devices, BlackBerry still managed to lose 4 million subscribers. The service revenues are struggling due to fee cuts and lost subscribers. The segment has traditionally made up for the poor performance of the hardware unit but this time, adjusting the currency effects, it witnessed a drop of 9%. The total subscriber count now stands at 72 million. What is alarming is that despite releasing phones in over a year, the number of lost subscribers is not slowing down. In Q3-2013, it lost 1 million subscribers, which was followed by 3 million in the next quarter and now we have an even bigger number of 4 million.

    This has caused a major shift in the company's sales mix in which BlackBerry gets more than 70% of its revenues by selling Hardware. The quarterly earnings have shown that Blackberry now earns 71% of its revenues from hardware, as opposed to 59% in the same quarter last year. On the other hand, the contribution of service revenues to overall sales has dropped by 10 percentage points.

    (click to enlarge)

    In the previous quarter, BlackBerry earned 44% of its revenues from Europe Middle East and Africa (EMEA) region by witnessing a growth of 30.5%. North America, its home and now its second biggest market, witnessed a 4% drop in sales. Latin America's sales dropped by 22.6%, partly due to Venezuela's foreign currency restrictions while Asia Pacific witnessed a growth of 28%.

    Regions

    2012

    (In Million)

    2013

    (In Million)

    % change

    North America

    $794

    $761

    -4.2%

    EMEA

    $1,029

    $1,343

    +30.5%

    Latin America

    $580

    $449

    -22.6%

    Asia Pacific

    $405

    $518

    +27.9%

    Five months ago, the company launched its new operating system BB10 and Z10 Smartphones. In March, it introduced the Q10 with BB10 operating system and Q5 for developing markets. So far, the BB10 has failed to impress the investors but the management insists that it is too early to make any judgements. Nonetheless, the company has lost the high-end market to Apple and the low-end to Nokia. It is trying to make some room in the middle but with falling subscribers, declining shipments and earnings miss; I believe that its outlook appears far from bright.

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

    Business relationship disclosure: I wrote this article myself, and I would like to thank Mr. G. Yousuf for his assistance. I am not receiving any compensation for it (other than from Seeking Alpha), I have no business relation with any company whose stock is mentioned in this article.

    Tags: BBRY, earnings
    Jul 01 7:28 AM | Link | Comment!
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