Blackberry Misses Street Revenue Estimates And Gets Taken To The Woodshed

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Includes: BB
by: Jay Somaney

Summary

Why did Blackberry sink post-earnings.

With Blackberry down after earnings, what should investors do?

Blackberry down on unrealistic expectations.

Blackberry reported numbers this Friday just gone and promptly saw its shares take a drop-kick to the rear to the tune of over 12%. The stock closed on Friday, June 23, 2017 at $9.71 per share, down $1.35 per share on heavy volume of just under 40 million shares traded.

So what went wrong with the results and what should shareholders do going forward?

Let's begin with what went wrong with the results. The company announced earnings of $0.02 per share on revenues of $244 million for the company's fiscal quarter end in May. Wall Street was expecting a break-even quarter on revenues of $266 million for the May quarter. For a company like Blackberry that has stumbled repeatedly (but has seen its share price soar going into the earnings event, thanks to its cash windfall from the Qualcomm arbitration and subsequent judgment) a tiny miss is disaster, let alone a revenue miss of almost 10%.

The second issue was the fact that the company merely maintained guidance for the rest of FY:18 versus even a small raise that shareholders and Wall Street sellsiders were expecting given the buzz around Blackberry's transformation into a software company. For a company that has seen its share price rise by almost 70% in 2017 (prior to the beat-down this past Friday), a steady-as-she-goes guidance is just not enough.

Third, the company's gross margins also came in short of most Wall Street sellsider estimates. Another no-no if one is looking at signs of progress going forward.

Finally, the company announced a 31 million share buyback which would reduce the current public float by 6.4%. Another sign to shareholders that the cash windfall from Qualcomm is not being well-spent. On the flip side, the company did say that they would increase marketing expenses going forward in order to be more aggressive in going after customers. That part I am okay with.

Finally, comes the important part of this article which is to answer what shareholders could possibly do going forward. For current shareholders, selling weekly calls against your long share position would help mitigate the pain of the 12% haircut on Friday. Blackberry has about $6 per share in cash so there is not much downside at current levels unless one chooses to value the company at only cash.

In my last article on these pages on Blackberry I had stated the following which still holds true, "BlackBerry is not cheap given the fact that it is in the very early stages of its turnaround and thus earnings are still minimal".

Given the high expectations going into Blackberry's call I had no exposure to the stock or options but somewhere in here I will more than likely start to accumulate a position. Be aware that Blackberry is back to being a "show-me" story once again and that shares could be tightly range-bound until there is a catalyst from the company or until the next earnings report.

Words to the wise.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BBRY over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.