Smartphone maker BlackBerry stunned Wall Street Thursday with a surprise profit for its fiscal fourth quarter, but the Canadian company and its fledgling turnaround efforts will face a reckoning this summer, analysts say.
The Waterloo, Ontario-based company said it earned 22 cents a share for the quarter ended March 2. Analysts polled by Thomson Reuters had expected BlackBerry (BBRY) to lose 29 cents a share. For the full fiscal year, BlackBerry lost 60 cents a share.
Revenue Falls 36%
But BlackBerry's revenue came in lower than expected at $2.68 billion, down 36% from the year-earlier quarter, and below the $2.84 billion analysts had forecast.
BlackBerry shares rose nearly 7% to 15.55 in intraday trading Thursday before giving it all back and more. The stock ended the day down nearly 1%, at 14.45.
BlackBerry said it shipped 6 million smartphones in the quarter, including about 1 million BlackBerry 10 models, its newest products and best hope yet of getting back in the game vs. smartphone leaders Apple (AAPL) and makers of Google (GOOG) Android phones such as Samsung. BlackBerry also said it shipped about 370,000 PlayBook tablets.
But this is where equity analysts started throwing up red flags. BlackBerry reports "sell-in" figures for its phones, not "sell-through" numbers. It's basically filling the sales channel in hopes that those phones will actually be sold to consumers. If they don't, BlackBerry will have to heavily discount to move those products.
"They recognize revenues and margins on sell-in, not sell-through," MKM Partners analyst Michael Genovese said. "Sell-in is when a distributor or carrier orders. Sell-through is when somebody actually buys a phone. If they don't get sell-through, then they end up having to reverse out revenues and profits in later quarters.
"And that's exactly what we think is going to happen.
Ominously Quiet U.S. Launch
Genovese sees "bad news ahead" for BlackBerry based on what he's seeing in BlackBerry 10 sales to consumers. "In the U.S., the launch has been complete crickets," he said. "So far, it's been a disaster.
With the U.S. launch of its new BlackBerry Z10 touch-screen smartphone just under way as of March 22 and its Q10 model with a physical keypad coming soon, the success of its BlackBerry 10 phones won't be known for a quarter or two. But anecdotal reports point to soft early demand for new phones in markets like the U.S. and U.K.
Meanwhile, competitors are preparing to release their latest and greatest devices. Samsung Electronics is coming out with its hyped Galaxy S4 smartphone in late April and Apple is expected to follow soon with an iPhone 5S and possibly a new entry-level iPhone.
BlackBerry, formerly known as Research In Motion, faces a lot of skepticism among investors.
About 147 million out of 525 million BlackBerry shares are held short, betting on the stock to fall, says RBC Capital Markets analyst Mark Sue.
No Netflix, Pandora, Moviefone
One problem with BlackBerry 10 smartphones is a lack of apps. The new operating system has only 5% of the top iPhone apps and 10% of the top Android apps, Genovese says. It's missing such popular apps as Netflix (NFLX), Pandora (P), Sonos and AOL's (AOL) Moviefone.
BlackBerry lost 3 million subscribers in the fourth quarter, bringing its total base to 76 million. Still, that's a significant installed base to sell to, says BGC Partners analyst Colin Gillis. BlackBerry's Q4 results give hope to a company that many had left for dead before the BlackBerry 10 launch.
"They live to fight another day," Gillis said.
BlackBerry expects to break even in the current quarter, its fiscal Q1. Analysts had expected a loss of 10 cents a share. BlackBerry said it plans to increase its marketing budget by 50% from the fourth quarter.
BlackBerry also announced that Mike Lazaridis, vice chairman and former co-CEO, will retire from the board on May 1. Lazaridis said last week that he is starting an investment fund called Quantum Valley Investments.
A big overhang on the stock had been whether BlackBerry could even survive, says Sterne Agee analyst Shaw Wu. The company's Q4 showed that it could be profitable again.
"They are at least showing that they have an economic model that can work even though the company is not exactly putting a dent in the competitors yet," Wu said.
William Blair analyst Anil Doradla is already convinced that BlackBerry's profitability is not sustainable. "We remain skeptical on the long-term viability of BlackBerry 10," he said in a research note Thursday.