Blackberry – Mother of all revenue misses

Blackberry pre-announced their quarter today, announcing that their revenue estimates are going to be about half of what analysts were expecting.

Their stock, surprisingly, was only down about 17% in the half hour that traders had to disseminate the information before the market closed. Quite frankly, given that their mass-market handset sales have plummeted to very little, I am surprised that they aren’t trading down further. Part of the reason why they haven’t dropped further is that there is implied value the company can fetch in some sort of liquidation.

Balance sheet-wise, they are still in a relative position of strength – with a couple billion in cash in the bank and no long-term debt. They’re probably going to have to utilize this for severance packages as they are laying off half their workforce.

Strategically speaking, Blackberry is now shifting to its roots in the business end – presumably getting out of the consumer market. It will be interesting to see whether there will be much of a market left for the technology side within organizations.

That said, if the stock gets hammered further, I will be eyeing some for a purchase. It is still slightly away from a point where I will consider a purchase and I would also need to see the actual quarterly results themselves (which will paint a bunch of doom and gloom). There will also be the component of people that will be dumping their stock by the end of the year to book a tax loss, and who wants to have the embarrassment of actually owning Blackberry any time this year? Anybody entering into the stock in 2013 will likely be guaranteed to be sitting on a loss.

On a total side note, if they are writing off their existing inventories of Z10s and other mobile units, I am actually in the market to just do a straight purchase without committing to any length of period for a mobile service contract. Maybe if they are going to do a fire-sale of inventory that I’ll finally pick up a new phone compared to the nearly-broken dinosaur I currently have for a mobile phone. Right now I clearly am not interested in paying $625 for one of them, but if they slash prices by half, I can easily upgrade. I did have a chance to try out the product and they are well designed, despite all of the negative mind-share that Blackberry has today.

Disclosure: No positions.

7 thoughts on “Blackberry – Mother of all revenue misses”

  1. Why you would upgrade to a Blackberry is beyond me.

    Is this some kind of Canadian sentimentalism?

    The inventory is worthless. I would rather an OLD android than a new Blackberry.

    John

  2. John, great to see you’re actually still reading this site.

    To answer your question, absolutely Canadian sentimentalism! Can you think of anything else this country has produced in the technology scene with nearly as much global impact as Blackberry? I realize that’s going to evaporate pretty soon.

    There’s a side reason to using a Blackberry and that is avoiding getting ensnared in a company’s ecosystem, whether it is Microsoft’s, Apple’s, or Google’s. Since Blackberry clearly isn’t going to have one anymore, there is little future risk of getting snared. Fortunately I’m a luddite when it comes to mobile phone adoption and generally do not need a phone for more than voice communication, text messaging and the rare check of email now and then.

    I will disagree that the inventory is worth zero. I have no clue what the unit cost is to produce a Z10 or whatever, but if they sold for unencumbered prices of $200 or so, people would buy them. Clearly their business model is not going to support that. It would be sort of like Microsoft selling X-Boxes below cost and not making money when games are sold.

    Blackberry definitely is out of the consumer market now.

  3. I hope the write downs will include Q10
    Several reasons to own BB: I have owned android and used the new BB
    1. key board
    2. battery life which 99.99% of android phones know nothing about
    3. ability to handle as many email addresses as you can create
    4. the browser in q 10 or z 10 is way better than any browsing experience of any other phone
    5. sure there are no apps but with android i can’t remember the last time i downloaded one from google play

  4. There seems to be a lot of interest in Blackberry’s messaging system being made available for iPhones and Android. Will that change BB’s fortune for the better?

  5. Prem Watsa gets into the mix with a US$9 floor bid, subject to the usual conditions. Wonder how much optionality there is in the stock now.

  6. At US$9, values the company at US$4.7 billion. Current cash on hand is $2.6 billion, so net enterprise value is $2.1 billion in terms of asset residual.

    Even when contemplating what happened with Nokia/Microsoft, this seems cheap, and has set the ball rolling for others to either “put up or shut up” in terms of starting some sort of bidding war. Fairfax gets $157 million if a bidder trumps US$9/share, or $262 million if this happens after they execute an agreement with BB at US$9/share or higher.

    FFH shares are doing pretty well during this. Not exactly known whether they are going to be the 100% owner, or what the partition is going to be if they get the whole corporation.

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