BlackBerry's Lifeboat Is Sinking

Perhaps the most troubling aspect of BlackBerry's (NASDAQ: BBRY  ) disappointing earnings results was that it lost 4 million subscribers during the quarter, despite recently releasing two flagship BB10 devices. This indicates that BB10 is failing to impress, and that's a bit problematic, considering subscribers have been the company's lifeboat -- and quite frankly, the only reason it's still in business today.

Source: BlackBerry. Fiscal quarters shown.

Subscribers are so important because each subscriber generates a stream of recurring service revenue throughout the lifetime of the device. During fiscal 2013, BlackBerry's software and services revenue accounted for 37% of total revenue, but made up all of the device maker's gross profit. To make matters more challenging, BlackBerry has to add even more BB10 subscribers just to break even with BB7 service revenues. The company was forced to lower its services fees for BB10 devices due to "competitive" pressures.

Source: BlackBerry. Fiscal quarters shown.

The hope that BB10 would be such a smashing success that the company would make up for service fee cannibalization with volume isn't exactly playing out. Despite selling 6.8 million smartphones for the quarter, only 40% were of the BB10 variety, which breaks down to about 2.7 million devices. Perhaps the mix will change in favor of BB10 in the coming quarters as the company releases a swath of mid- to low-range devices, but even then, unit volume will have to be significant in order to drive higher services revenue.

Abandon ship!
BlackBerry bulls may find comfort in the fact that the company shipped 13% more devices this quarter on a sequential basis, but I would like to remind them that more subscribers are moving away from the BlackBerry ecosystem than there are devices being shipped. If that weren't the case, the company wouldn't have bled 4 million subscribers during the quarter. More than likely, the company has $3.1 billion in cash to keep it afloat, but just because you're treading water doesn't mean you're a good swimmer.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Read/Post Comments (7) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 01, 2013, at 6:22 PM, HelpIsHere wrote:

    Oh boy, they lost 2 million subs and BlackBerry did not register the 2 million in Venezuela because they haven't received their full payment yet. Is this all news to you? Now that's 45 consecutive articles repeating the same thing, thanks for that.

  • Report this Comment On July 01, 2013, at 8:47 PM, Oril wrote:

    Does Apple report subscribers?

    Does Samsung report subscribers?

    Does Microsoft report subscribers?

    Does any other company report subscribers?

    Just wondering.

  • Report this Comment On July 01, 2013, at 11:55 PM, RandomMeaning wrote:

    "On July 01, 2013, at 8:47 PM, Oril wrote:

    Does Apple report subscribers?

    Does Samsung report subscribers?

    Does Microsoft report subscribers?

    Does any other company report subscribers?

    Just wondering."

    You do realize that BlackBerry reported subscribers because that is part of their revenue stream because of their data service. That is not, nor has been, part of the service provided by Apple, Samsung, or Microsoft because the data service is handled by the cell carriers who actually do report subscribers.

    How could you not know this?

    But if you want to know how many people own Apple iPhones, that is very easy because they report actual sales, not shipments. Why? Because Apple is proud of their sales numbers and happy to keep their customers and investors informed.

    What you should be concerned about is why Blackberry is denying relevant information to their customers and investors. Granted subscribers are declining part of their revenue stream but it is still a very large part of it. Can you imagine Microsoft suddenly refusing to report on their Windows OS revenue stream? Why is Blackberry refusing to provide this information?

  • Report this Comment On July 02, 2013, at 7:29 AM, TimmyBee123 wrote:

    This is beyond stupid. The more people who buy BB10 devices, the less subscribers they will have.

    So, according to your logic, they lose either way.

  • Report this Comment On July 02, 2013, at 7:33 AM, TimmyBee123 wrote:

    @RandomMeaning - The concept of subscribers does not exist for BB10 phones so it will be irrelevant going forward. If 3 million people switch to BB10 devices from OS 7 devices, they will lose 3 million subscribers.

    But, of course, you knew that.

  • Report this Comment On July 02, 2013, at 8:18 AM, RandomMeaning wrote:

    "On July 02, 2013, at 7:33 AM, TimmyBee123 wrote:

    @RandomMeaning - The concept of subscribers does not exist for BB10 phones so it will be irrelevant going forward. If 3 million people switch to BB10 devices from OS 7 devices, they will lose 3 million subscribers.

    But, of course, you knew that."

    That's exactly why I said "declining part of their revenue stream". But it's still a large part of their revenue stream. Also note Blackberry announced they are creating yet another BB7 device to sell. The revenue may be declining but their consumers and investors should still be accurately kept informed.

    iPod sales have been in decline for years and are a much lower part of Apple's revenue mix then they were (since smartphones are replacing that function) but Apple still reports them.

    As an addendum, Blackberry still counts BB10 in their subscriber count. After all, they are still data subscribers. They're just less profitable in that particular revenue stream. It's even mentioned in the article above: "The company was forced to lower its services fees for BB10 devices due to "competitive" pressures." So yes, the "concept of subscribers" does still exist for BB10.

    But, of course, you should have known that.

  • Report this Comment On July 02, 2013, at 11:28 PM, misledbyfools wrote:

    With 76M subs after Q4, BBRY will lose approximately (11M less new sales) per quarter subs going forward as approx. 11M subs are up for renewal each quarter. The 11M per quarter is based on the total divided by 7 quarters as that is roughly the upgrade/renewal time frame in the smartphone market for BBRY subs.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2518658, ~/Articles/ArticleHandler.aspx, 10/25/2014 12:37:49 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement