BlackBerry Turnaround? The Odds Are Against Them

Jacob Harper |

Market-leader-turned-pariah Blackberry (BBRY) reported third quarter earnings on Dec. 19, offering up a massive $4.4 billion loss. Inexplicably, the company’s stock shot up on the bloodletting, gaining nearly 14 percent by midday.

The jump-off can be attributed exclusively to the silver lining in the otherwise abysmal earnings report: that the smartphone company had entered into a five-year partnership with controversial Chinese phone manufacturer Foxconn. After failing to find a buyer, BlackBerry has decided to basically spin off their hardware division, handing over manufacturing responsibilities whilst retaining intellectual property.

The spin-off will allow BlackBerry to focus on their successful instant messaging service while shuttling the largely unprofitable smartphone service. After all, the company wrote down some $2.7 billion in the third quarter on the gargantuan failure that was the 10 phone line. But for the company to truly turn it around, several things will have to fall in their favor.

One, the deal with Foxconn – which is supposed to help bring a cheap smartphone alternative to Asian markets – needs to materialize before Apple (AAPL) and Samsung solidify their positions in those developing markets. Two, BlackBerry’s star product – its BBM messaging service – needs to survive the incredibly stiff competition coming from red-hot massaging startups like WhatsApp and established tech companies that are fast entering into the market, like the Google (GOOG) -backed Hangouts.

And three, BlackBerry simply needs to survive. There is an incredibly good chance BlackBerry won’t survive 2014 without a white knight buyer. While effectively spinning off hardware will certainly stop things like pesky $2.7 billion quarterly writedowns, the company is quickly running out of cash, with only $3.2 billion on hand, and can’t stomach many more quarters of decimated revenues and massive losses before being forced to liquidate.

For the third fiscal quarter, BlackBerry reported a net loss of $4.4 billion, or $8.37 ($0.67 excluding writedowns) per share, versus the loss of $114 million, or $0.22 per share, from the same period a year ago. Revenue for the quarter was $1.2 billion, a 24 percent drop from last year’s revenue of $2.7 billion. Analysts were expecting a loss of $0.37 per share on revenues of $1.51 billion.

BlackBerry plunged, then spiked following the revelation of the Foxconn deal in a post-earnings conference call with investors. By midday the company’s shares were up 13.28 percent to hit $7.08 a share.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AAPL Apple Inc. 113.95 1.83 1.63 34,402,627
GOOG Alphabet Inc. 789.29 12.87 1.66 1,821,914
BBRY BlackBerry Limited 7.81 -0.02 -0.26 3,247,210
IFBC Italian Food & Beverage Corp 0.01 -0.00 -0.67 386,317

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