Deutsche Bank: Hold rating and $8.00 target for BlackBerry
According to Deutsche Bank:
Good print, but significant challenges still ahead
Blackberry announced Q4 revenues of $2.7 billion, above our estimate of $2.6 billion but below consensus of $2.8 billion. Pro-forma EPS was $0.22 including a modest operating loss, above our estimate of ($0.95) and consensus of ($0.31). The company shipped 6 million smartphone units in the quarter. While the company had a moderately successful launch of the Z10, we highlight that there is a long way to go and believe they still have significant challenges in the form of maintaining their subscriber base during a platform transition and slowing the decline of service revenues both during and after this transition. As a result we maintain our Hold rating.
Margin improvement and a decent device launch
In terms of good news, the gross margin line surprised to the upside. The surprise likely had to do with a slower-than-expected decline in service revenues, better sales of the Z10, and a slowdown in sales of lower-margin BB7/BB6 devices. Management should be commended for cutting some of the unnecessary gross expense items; they have done this by decreasing the number of manufacturing sites and limiting the number of EMS providers. Additionally, we were pleased to hear the Z10 had taken a number of subscribers from other platforms.
Declining BB7/BB6 subscriber numbers will remove a service tailwind over the longer term
We believe it is likely inevitable that their subscriber numbers continue to decrease as they make the transition to the new BB10 platform. Moreover, in order to penetrate developing regions, a drop in BB10 handset ASPs is likely – either by discounting existing sku’s or introducing lower priced sku’s, which they hinted at on the call. Either way, the calculus for lowering ASPs is much different for BB10 than for BB7/BB6 devices as service revenues for BB10 must be discounted.
What a joke. They beat their EPS estimate by only $1.17 but hey $8.00 target is reasonable. Especially when its trading at 15 at the moment., These guys should be laughed at in the streets or thrown in jail. Probably both.