Earnings miss, falling shipments and declining subscribers, nothing is going right for BlackBerry. The outlook of the company remains negative.
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.
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.
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.
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%
|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours of this publication. I wrote this article myself, and it expresses my own personal opinion. I have no business relationship with any company whose stock is mentioned in this article.