BlackBerry Stumbles Its Way to the Finish Line

Another bad quarter for this fallen smartphone hero.

Mar 28, 2014 at 9:56PM

It's hard to forget that BlackBerry (NASDAQ:BBRY) once commanded the brand cachet that Apple (NASDAQ:AAPL) and arguably Samsung do today. Of course, a number of strategic blunders, coupled with the rapid rise of Apple and the various Android vendors, made life extremely tough for BlackBerry, and its shares ultimately trade at just a fraction of their 2007 peak. With yet another quarter turned in, BlackBerry once again stumbles to the finish line.

Z

Weak, but manageable, financials
Revenue of $976 million represented a 63.6% decline from the year-ago period. GAAP loss from continuing operations was a whopping $423 million, or $0.80/share. Of course, to be perfectly fair, this GAAP net loss included the following:

  • Non-cash charge of $382 million
  • Pre-tax recovery of previously reported inventory charges of approximately $149 million
  • Pre-tax restructuring charge of about $148 million related to the "Cost Optimization and Resource Efficiency" program

Excluding these extraordinary items, BlackBerry lost $42 million from continuing operations, or a much more modest $0.08 per diluted share. This is still down pretty significantly from a GAAP profit of $94 million ($0.18/share) in the prior quarter, but aggressive cost controls/reductions have managed to keep the loss manageable -- and with a $2.7 billion war chest, BlackBerry can hold out for quite a while.

The fundamental problem 
Okay, so the cash burn should slow in the coming quarters, and BlackBerry expects that it should be at cash flow breakeven by the end of fiscal year 2015. There's an interesting services story going on here, but in order to become a viable business on the back of that alone, the company would need to essentially ditch its hardware sales. And, frankly, it's difficult to see BBM being relevant, outside of assimilation by an acquirer, without the hardware business.

But, the hardware business is the problem, isn't it? In the most recent quarter, BlackBerry stated that 3.4 million BlackBerry devices were sold through the channel, but that a whopping 2.3 million of those devices were legacy BlackBerry 7 devices! At some point, that "gravy train" (if you can call it that) ends, and the world will have moved past the by-then antiquated BlackBerry 7 devices. If Apple, with its powerful brand, loyal customers, and up-to-date products, is having trouble maintaining/growing share, what shot does BlackBerry have? 

To illustrate the point, BlackBerry's share of the non-legacy BlackBerry 7 smartphone market, based on 1.1 million BB10 phones out of about 287 million adjusted-for-BlackBerry 7 total smartphone units, was less than 1% in Q4.

So, what does BlackBerry do?
The multi-billion dollar question is: What does BlackBerry do from here? Clearly, the hardware business isn't working out, and while the services division is now the majority of the revenue mix (56% of sales in Q4), it's unclear whether the company could survive, at its currently opex run rate, on services alone, especially with a hardware business that seems to be trending to zero.

The interesting thing though, is that with $2.7 billion in cash, the market is assigning an enterprise value of $1.7 billion to the company. Now, in the most recent quarter, services made up 56% of a $974 million revenue base; this works out to $545 million in revenue. In the year-ago period, services made up 36% of revenue on a $2.7 billion base; this works out to $972 million in revenue. Revenue in services declined substantially year over year, so it's not as though this is a high-growth business that will compensate for the decline in hardware, even if the CEO tells investors that people are just holding off for BES 12.

Foolish bottom line
In short, BlackBerry is just in a tough spot, and the cash on hand is the only thing keeping the stock anywhere close to its current levels. While it will take time for that cash position to erode, and while some may still hold the shares on speculation of a "buyout" (look many people got burned by Prem Watasa's "offer"), the truth is that BlackBerry needs to dramatically reinvent itself. Even if it does, there's very little assurance that it will be in the right business at the right time.

Don't get burned chasing BlackBerry
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play," and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers