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

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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.

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9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
BBRY $7.91 Up +0.02 +0.25%
BlackBerry CAPS Rating: *