Blackberry (BBRY) reported its 2014Q1 results this past Friday, and as everybody now knows the results failed to meet expectations. The shares as expected plunged 27.8% to close at $10.46.
The company failed to perform according to the most important metrics, that is unit sales and gross margins. Blackberry disclosed that it shipped 6.8 million smartphones for the quarter. Of this, 2.7 million were the new BB10 devices. This fell short of the market consensus of more than 3 million for the its new Z10 and Q10 smartphones. In addition there was no breakout as to how many Z10s and Q10s were sold. To be fair the Q10 was just released so there probably no reliable figures to report. Gross margins were negatively impacted falling to 33.9% from 40.1% in the previous quarter. Software service revenue as well was more severely impacted than expected, falling to $806M from $964 M, a significant decrease of $158 (16.3%), and this trend is expected to continue.
All in all the results were disappointing. In terms of the overall results, the street consensus, according to Thomson Reuters I/B/E/S had expected a profit of 6 cents a share on revenue of $3.36 billion. The actual figure was a net loss of $84 million or 16 cents a share for the quarter.
So what are we to make of this? From the perspective of the long term investor the results were clearly disappointing and many dumped their shares indicating that this is the beginning of the end and does not bode well for the long term future of this company in the highly fragmented and extremely competitive smartphone market. But from the perspective of the short term trader, this may well be a window of opportunity over the next few months.
The long term investor is clearly out, or he's looking to stay short over the long term, thinking that over the long term this company has no chance of surviving and is expecting a slow and agonizing death, which in fact may be the case.
But from the perspective of the short term trader, this may present a trading opportunity over the next quarter or two. The question you have to ask yourself is whether the 27.8% drop in the stock price was excessive and an overreaction to the results. Does the stock price at $10.46 now present exceptional "value" and a more favourable risk/reward profile? Is the stock now a bargain moving forward? I have a sneaky suspicion that in the eyes of those focused more on the short term , that this in fact the case and presents a favourable buying opportunity. I am sure that once the stock settles down over the next few days that many who are less risk adverse will begin to buy in.
I say this for two reasons. First , lets have a look at the recent history of Nokia (NOK). This company has a similar history to Blackberry over the last couple of years, being supplanted and then overtaken by both Apple(AAPL) and Samsung (OTCPK:SSNLF). It was down in the doldrums and sunk to a low of $1.63 per share (July 2012) before it paired up with Microsoft (MSFT) as a strategic partner. The results of this partnership up to this point has been modest, but the stock is now trading at $3.74 (Friday close), or a more than doubling of the stock price. I'll take this result anyday of the week.
This is not to say that this will also happen to Blackberry, since it has no strategic partner to rely on, but I expect the stock to rebound over the short term. On the other hand , the prognosis for this company over the longer term is clearly negative.
Over the next quarter I expect the stock to rebound . First of all I think that the reaction to the downside was overdone, particularly with only preliminary results for its Q10 and Q5 devices to go on. Not enough time has elapsed to determine the true level of market acceptance for these two devices. I believe that the sales results for the next quarter will be a better gauge for assessing the fortunes of the company.
Last I checked, the company still has a subscriber base of over 70 million. Many have also stated that the company has no competitive advantage, and whatever advantages it has in the past is now gone. Its reputation for offering a more "secure environment" and offering the best "tactile" experience for those hooked on the QWERTY keyboard is now considered more illusion than real. Whether this is the case remains to be seen, particularly in the corporate market. Secondly, offering a second device with basically the same functionality as its other devices at a more affordable price point in the faster emerging markets cannot be viewed as a failure at this point. Hard sales numbers presented at the end of the next quarter will be a better litmus test.
In conclusion, the stock fell out of bed on Friday. If you see yourself as a nimble short term trader and believe that next quarter's numbers has a good chance of surprising to the upside, then maybe this is a good time to buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.
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