Will Friday's BlackBerry Earnings Release Spark a Bidding War?

BlackBerry (NASDAQ: BBRY  ) will release its quarterly report on Friday, but thanks to a preliminary release of some of its results, investors already know that the quarter was a terrible one. The big question facing shareholders on Friday is whether the BlackBerry earnings report will dissuade Fairfax Financial (NASDAQOTH: FRFHF  ) (TSX: FFH  ) from its buyout offer for the struggling smartphone pioneer, or whether it could inspire a rival bidder to step forward.

BlackBerry has gone from rags to riches and back again in the space of less than a decade, as its once-groundbreaking smartphones have largely given way to rival products from Apple and a wide variety of manufacturers using Google's Android operating system. Android has taken commanding market share throughout the smartphone space, while Apple has kept its strong position in the high end of the market with its long line of iPhone successes. Can BlackBerry survive as it has sunk into fourth place in the mobile market? Let's take an early look at what's been happening with BlackBerry over the past quarter and what we're likely to see in its report.

Stats on BlackBerry

Analyst EPS Estimate

($0.44)

Year-Ago EPS

($0.27)

Revenue Estimate

$1.93 billion

Change From Year-Ago Revenue

(33%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

What will BlackBerry earnings do to the Fairfax bid?
As little as a week ago, analysts had much more optimistic expectations for BlackBerry earnings. But the company's pre-announcement of earnings sent those expectations plunging, as BlackBerry said that it would post an adjusted net loss roughly triple what investors had thought. Revenue plunged to about $1.6 billion, and although those figures don't include a substantial number of BlackBerry 10 sales, the company took a massive inventory charge of between $930 million and $960 million to reflect competition in the smartphone space. BlackBerry shares plummeted, bringing the stock's total losses since late June to about 40%.

BlackBerry has known for a while that it needed to make major changes in order to survive. Last month, the company used the traditional buzzwords of seeking "strategic alternatives," indicating that it was positioning itself for a breakup, asset sale, or full-blown acquisition. With Apple using its proprietary iOS operating-system software, Motorola and Samsung reliant on Google's Android, and the merger of Nokia's smartphone business and Microsoft, BlackBerry's new BB10 operating system was left to fend for itself on the hardware front.

But the bid from major shareholder Fairfax Financial to buy out BlackBerry for $9 per share has analysts wondering if BlackBerry can fare better as a privately held company. The bid is far from a done deal, as Fairfax has the right to back out of its $4.7 billion bid after conducting due diligence. For its part, BlackBerry can seek rival bids, but most of those following the company don't expect it to be successful in finding another interested buyer.

The big question for BlackBerry's future is whether its streamlined strategic plan for smartphones in development will inspire current customers to stick with the company. The company released its Z30 handset last week, which uses a power-saving OLED screen and carries some other advantages compared to its Z10. But with Apple and Google phones offering more innovative features and better performance, the Z30 isn't likely to rescue BlackBerry.

In the Friday BlackBerry earnings report, look closely to confirm the figures the company gave in its preliminary figures and to assess any additional information it gives in light of Fairfax's buyout offer. If anything happens to scuttle the Fairfax deal, shares could be headed for another wave downward.

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Read/Post Comments (2) | Recommend This Article (0)

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 September 25, 2013, at 5:37 PM, HelpIsHere wrote:

    Nothing here again but it is an update from the last article posted a few hours ago saying the exact same thing.

  • Report this Comment On September 25, 2013, at 5:41 PM, asif1031 wrote:

    Dan,

    Blackberry in 4th place is the same as being in Last place.

    I think it's safe to say that there will be no bidding war after the earnings release. Even if there were another offer, it would most likely come 6 weeks *after* Fairfax's "Letter of Intent" and certainly after the unnecessary $157MM penalty for Blackberry to backout. This Letter of Intent is actually quite meaningless considering it's got no penalty to Fairfax, and really to alot of us in the investment community it looks like Prem Watsa's last ditch attempt to try and stop the bleeding on his 10% stake. We see his poker game and know that he really does not want to end up owning Blackberry. No one has joined the consortium, and Fairfax is not committing additional funds and seeking financing. The question is, who would lend on a losing bet?

    1)The handset business is worthless, and most likely all of the remaining cash on hand will be used to close it down.

    2) BBM is also worthless. Whatsapp and another of other free messaging tools render this app worthless

    3) Patents are not worth 3 billion. At most we believe the patents are worth 300MM. The funny thing is, if competitors were able to survive without the patents before, why would they need them now?

    4)Blackberry Enterprise is really the only component left. The business is not really growing and companies are starting to move off of it.

    All of the above reasons are why Blackberry is trading at $8/share and headed lower even after the fake offer from Fairfax.

    Remember, the 52 week low was $6.52 - with all this negative news and losing over a billion dollars..., we really have a long way to go.

    Good luck to all and sorry to the people who have been long. Someone needs to open a lawsuit on management for all the lies and misleading of shareholders and analysts! Start with the insider trading before releasing all the horrible news last Friday. No sense in feeling sorry for a management focused on buying corporate jets all while losing shareholder money.

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