Credit Suisse: Underperform and $10 target for BlackBerry
- Results decent, we question sustainability. Research in Motion’s F4Q13 results were ahead of expectations with the company returning to profitability for the first time in a year. This is to be commended, though we question the sustainability particularly with respect to the GM improvement given the company’s positioning in the hyper-competitive smartphone market and the boost from declining amortization. Additionally, we believe that the company’s major business model change in services will result in a significant decline in the high margin revenue stream, driving operating losses and potential cash burn. We adjust our EPS estimates to $0.25/-$1.07 in FY14/FY15 and reiterate our Underperform rating and $10 TP.
- Concerns remain around BB10 adoption and GM. Our concerns surrounding BB10 traction remain for several reasons. First, the specs and price points of the devices are clearly aimed at the high-end of the market (i.e., above $400), limiting the opportunity with strong entrenched competitors in the space. Second, we believe that GMs on BB10 of 40% are not sustainable as the platform will increasingly push towards lower price points and may be forced to discount similar to Nokia’s experience with WP last year. Further, the impact from the step down in amortization a temporary and non-cash benefit to GMs. We now project hardware revenues of $7.7bn/$4.6bn with GM of 23.1%/18.0% in FY14/FY15.
- Running out of the services revenue stream. We believe visibility of the services revenue stream is rapidly deteriorating given several factors. First, as noted this quarter, churn off the BB7 platform is accelerating with at least 5% of the base leaving. This level of churn from the base is worrying, and we now project year-end subscribers of 69.0mn and 63.5mn in FY14/FY15. Second, given the lack of BB10 monetization of the NOC and ongoing carrier renegotiation we believe ARPU will decline by 18.6%/13.6% to $3.55/$3.07 in FY14/FY15.
GM compression is based on the assumption that there is not and there will not be a growing acceptance of this product, and with the QWERTY release. time will tell there. Its a safer bet than apple in my view. No such thing as "entrenched competitors" just like there is not such thing as your last golf swing effecting your next if you are good at it. There has never been a need for loyalty in electronics purchases, NEVER EVER. Comparing to Nokia a prime example of not seeing the market well.
What is likely happening is an attempt almost on a government level of cornering and controlling markets for domestic concerns and/or just to prove that "you can do that". Freedom of choice and decisions in purchases has always won out here unless of course all of our money has gone to the wrong hands. ( which is always possible ).
Services and applications are constantly being hammered here whereas this phones reputation is for ethics in its security of phone and info handling far beyond that of others. Lets hold this post to the 63 to 65 M subscribers by year end. The monikers and abbreviations and symbols smacks of old gov designs gone wrong and defunct. LOL.