BlackBerry's Loss: Here's The Extent of the Crisis

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Roll on the recovery! Third-quarter GDP growth was revised higher this morning to an annualized rate of 4.1% from 3.6%, versus expectations of a flat revision. Better yet, growth in consumer spending was revised upward by 0.6 percentage point to 2%. These numbers bolster the case for the Federal Reserve's decision Wednesday to scale back its monthly bond-buying program. Not surprisingly, stocks opened higher this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.36% and 0.39%, respectively, at 10:13 a.m. EST.

When a company's quarterly per-share loss exceeds its share price, you know it's facing desperate times. That's the situation BlackBerry (NASDAQ: BBRY  ) is in this morning, having reported a net loss of $8.37 per share for its fiscal third quarter that ended Nov. 30. No wonder the company couldn't bear to put that figure on the first page of its earnings press release, opting instead to relegate it to Page 2.

The loss is a result of a massive $4.6 billion charge "associated with long-lived assets, inventory and supply commitments, and previously announced restructuring and strategic review process," according to the smartphone maker. In some situations, a company might get away with calling such a charge a "one-time" or "exceptional" item, but recall that BlackBerry took almost a $1 billion charge in the previous quarter to write down the value of inventory of its new Z10 handset, which isn't selling.

Excluding that charge, the company was still loss-making in the quarter, with a loss of $0.67 per share. However, it's the rate at which revenue is declining that really conveys the depth of BlackBerry's predicament: At $1.2 billion, third-quarter revenue fell 24% relative to the second quarter and 56% year on year. Both revenue and earnings per share were at the very bottom of the range of Wall Street analysts' estimates.

The company also announced a five-year strategic partnership with components manufacturer Foxconn to develop a smartphone, initially "for Indonesia and other fast-growing markets targeting early 2014." However, there is no indication regarding how BlackBerry intends to differentiate this product from competitors' in these markets. "Fast-growing" sounds exciting, but investors are left guessing when it comes to the company's strategy for capturing some of that growth; it's not as if other handset manufacturers have overlooked these markets.

After putting itself up for sale earlier in the year, the company ended the process last month. The fact that BlackBerry was unable to find a buyer was an ominous sign, as I think a sale represented its least bad option. Today's results suggest the once-dominant handset maker continues to hemorrhage value; my advice to investors would be to give these shares a wide berth. Even as a pure speculation, I think there will be better entry points in the future; furthermore, the odds of a successful turnaround look pretty meager at this stage. If you don't want to be left holding a spoiling fruit, avoid BlackBerry shares.

The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

 


Read/Post Comments (0) | 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.

Be the first one to comment on this article.

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: 2772644, ~/Articles/ArticleHandler.aspx, 9/2/2014 10:20:22 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...

Today's Market

updated Moments ago Sponsored by:
DOW 17,059.16 -39.29 -0.23%
S&P 500 2,002.39 -0.98 -0.05%
NASD 4,589.79 9.52 0.21%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2014 10:05 AM
^DJI $17061.55 Down -36.90 -0.22%
DOW JONES INDUSTRI… CAPS Rating: No stars
BBRY $10.48 Up +0.30 +2.95%
BlackBerry CAPS Rating: *

Advertisement