BlackBerry (BBRY) stock, formerly known as Research in Motion, had an ugly June; BBRY shares gave up more than 25% at the end of the month amid soft sales reports for its new smartphone line and weaker-than-expected BlackBerry earnings.
Looking forward, we can expect more of the same.
Because like I have been saying for quite some time, even amid a brief updraft in BBRY stock, it is clear that BlackBerry as we know it is doomed. Here’s why:
Ugly Earnings: Shares crashed recently after BBRY posted a loss of $84 million on the quarter, a surprise loss. The company lost money last fiscal year and was already projected to run in the red in the current fiscal year, so it’s not like the bar was very high … but clearly you have to start making money eventually or the lights just go out. Details were bad, too — subscribers down, inventory up, and so on.
Ugly BB10 Sales: About those details: Worse than the minor loss was the major disappointment on Wall Street over gadget sales. With only 2.7 million BB10 devices shipped, there are concerns that the Q10 and Z10 will not be the game-changers many had hoped — especially with BBRY enterprise clients. Management continues to urge patience, but history shows that most gadgets don’t get a second life a few months in after launch. After all, a year from now we will have a host of new Google (GOOG) devices, powered either by the company’s own Nexus line or just its open-source Android OS, and probably new iPhone offerings from Apple (AAPL). You can’t afford to wait on BlackBerry to win over customers.
Ugly Tablet Strategy: Let’s not even dwell on this. A mere 100,000 PlayBooks shipped in the entire quarter? Why doesn’t BBRY just cede defeat to the iPad and Amazon (AMZN) Kindle already and kill this line altogether? BlackBerry’s CEO thinks tablets are a fad anyway, right?
Ugly Sentiment: BlackBerry was downgraded from “buy” to “hold” at Societe Generale on Monday after disappointing numbers. Analysts at Needham & Company and Deutsche Bank also downgraded BlackBerry after the results. Elsewhere, FBR reiterated its “underperform” rating while dropping its target from $11 to $9, and UBS kept BBRY at “neutral” but dropped its target from $13 to $10. Need I say more?
Valuation Shmaluation: BlackBerry has traded at a fraction of its book value for some time. According to FactSet, BBRY stock hasn’t traded for par at any time in 2013 — not even during January’s red-hot run to $18. And yes, the company has $630 million in cash flow from operations and about $2.8 billion in cash and investments, so it’s not going bankrupt. But the idea that this stock can stage a rally based on a simple look at its balance sheet has gone up in smoke — just like profits have for BBRY investors lately.
I could once again be proven wrong here, and BlackBerry could once again soar to $18 and above by year end. Maybe a big enterprise client will place a massive order in September or maybe some crazy tech company will think BBRY would be worth acquiring for its security, messaging and programming assets. Or maybe the short sellers will get hit with another big squeeze later this year to inflate the stock price.
But I doubt it. The deck seems stacked against this perpetual underperformer.
I’ve said it before and I’ll say it again: There’s room for smartphone players beyond the iPhone and Android. And there’s an especially profitable niche for business and enterprise functionality on handsets. But Microsoft (MSFT) has deeper pockets, equal enterprise credentials and a nearly panicked ambition to figure out mobile right now.
My money is on MSFT to become one of the other bit players here, especially if the Z10 and Q10 continue to be as mildly received as the numbers indicate.
- Jim Cramer says to sell BBRY before it gets “really bad.” (CNBC)
- Why BlackBerry stock is both cheap and expensive at the same time. (The Tell via MarketWatch)
- More negative analyst sentiment on BlackBerry. (AllThingsD)
- Well well well, shorts in BBRY hit a record before earnings. Coincidence? (ValueWalk)
- My spring trading idea to sell BBRY puts with June 22 expiration was just a week too soon to hit the mother load! (MarketWatch)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.