Earnings Scorecard: RIMM

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Following the first quarter earnings announcement on June 28, most of the analysts covering Research in Motion (RIMM) have slashed their estimates. The brokers’ bearish stance is based on increasing competitive landscape, a stagnant product portfolio and the continuous delay in launch of its much expected BB10 OS based device.

First Quarter Highlights

On a GAAP basis, quarterly net loss was $518 million or 99 cents per share, compared with a net income of $695 million or $1.33 cents in the year-ago quarter. Adjusted EPS came in at a loss of 37 cents, substantially below the Zacks Consensus Estimate of a loss of 5 cents.

Quarterly total revenue of $2,814 million was down by a whopping 42.7% year over year, and also below the Zacks Consensus Estimate of $3,081 million. Operating loss was $643 million compared with an operating income of $897 in the year-ago quarter.

Agreement of Analysts

Of the 33 analysts covering the stock in the last 30 days, one analyst revised an estimate upward while 29 analysts have revised downwards for the second quarter of 2013. For the third quarter of 2013, of the 31 analysts covering the stock, none revised the estimates upward while 29 have revised the estimate downward.

For fiscal 2013, out of the 35 analysts covering the stock in the last 30 days, none raised the estimate upward while 34 analysts have lowered it. However, for fiscal 2014, out of the 31 analysts covering the stock, none revised the estimates upward while 25 analysts have lowered it.

Currently, the Zacks Consensus Estimate for the second quarter of fiscal 2013 is a loss of 43 cents, with a projected annual growth of (153.71%). For the third quarter of fiscal 2013, the Zacks Consensus Estimate of a loss of 40 cents indicating an annual loss of (131.12%).

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimates for the second quarter of 2013 was 37 cents below the previous estimates of a loss of 6 cents. While during the last 30 days, the current Zacks Consensus Estimates for the third quarter of 2013 was 53 cents below the previous estimates of 13 cents.

However, for fiscal 2013, the current Zacks Consensus Estimates is $1.84 below the prior estimate of 43 cents. For fiscal 2014, the current Zacks Consensus Estimates is $1.31 below the earlier estimate of 61 cents.       

Earnings Surprises

Research in Motion has fallen short of the Zacks Consensus Estimates in three out of four quarters. In the first quarter of 2013, the company’s reported earnings were below the estimate by an enormous 640.00% or 32 cents.

The second quarter of fiscal 2013 contains a 4.65% downside risk (essentially a proxy for future earnings surprises). While the estimate for the third quarter of 2013 contains a downside risk of 2.50%. Similarly, fiscal 2013 and 2014 estimates reflect a downside risk of 2.84% and 11.43% respectively.

Our Recommendation

We believe that Research in Motion will benefit from the surge in demand of smartphones in several emerging markets as the company generates a significant part of its revenue from international markets (outside the U.S. and Canada).

The company is also developing an LTE-enabled Blackberry which will run on the QNX operating system. This will help it attract most users interested in using LTE devices. Additionally, Research in Motion possesses a strong patent portfolio which could help the company develop innovative products.    

However, the company is in dire straits and is facing several problems due to an ever-increasing competitive landscape, primarily from Apple Inc.’s (AAPL) iPhone and other smartphones that run on Google Inc’s (GOOG) Android platform. We believe that the introduction of a new BlackBerry 10 OS-based smartphone is the last throw of dice from the company. However, delaying its launch could further deteriorate the company’s market share going forward.  

Thus, we maintain our long-term Neutral recommendation on Research in Motion. Currently, RIMM has a Zacks #4 Rank, implying a short-term Sell rating on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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