RIMM Beats but Share Price Tanks
The beleaguered BlackBerry handset manufacturer Research In Motion Ltd. (RIMM) has reported better-than-expected third quarter of fiscal 2013 financial results. Both the top and bottom lines topped the Zacks Consensus Estimates. Quarterly cash position improved sequentially as it maintains the previous guideline that the next-generation BlackBerry 10 software-based smartphones will be launched on January 30, 2013. Management has high expectations on BlackBerry 10-based devices.
Despite these positives in the earnings report, in the after market trade on NASDAQ, the share price of Research In Motion dropped $1.27 (9%) to $12.85. We believe there are two reasons for the downtrend in the stock. Firstly, for the first time in the company’s history, Research In Motion suffered a drop in its subscriber base. Secondly, the company’s decision to reduce its high-margin services fees, which Research In Motion earns from its messaging services for retaining and attracting customers.
GAAP net income in the third quarter of fiscal 2013 was $14 million or 3 cents per share compared with $265 million or 51 cents per share in the year-ago quarter. In the reported quarter, Research In Motion incurred a huge one-time income tax benefit of $226 million. Excluding this item, quarterly adjusted loss per share of 22 cents was better than the Zacks Consensus Estimate of a loss of 35 cents per share.
Total revenue in the quarter was $2,727 million, down by a whopping 47.2% year over year, but well head of the Zacks Consensus Estimate of $2,647 million. Segment wise, Hardware revenue was approximately 60%, Services revenue was 36% and the remaining 4% came from Software and other sources.
In the quarter under review, Research In Motion sold 6.9 million BlackBerry smartphones. The company sold around 255,000 BlackBerry Playbook tablets. At the end of the reported quarter, the global subscriber base of BlackBerry devices decreased almost 1 million to a total of approximately 79 million. Quarterly gross margin was 30.4% well above 27.2% in the prior-year quarter. Quarterly operating loss was $230 million compared to an operating income of $328 million in the year-ago quarter.
During the first nine months of fiscal 2013, Research In Motion generated $2,093 million of cash from operations compared with $1,857 million in the prior-year period. Free cash flow in the first nine months of fiscal 2013 was $1,768 million compared with $1,144 million in the year-ago period. Cash and marketable securities, at the end of the reported quarter, was $2,938 million compared with $2,111 million at the end of fiscal 2012. The balance sheet of Research In Motion remains debt free.
Future Financial Outlook
Management expects to report an operating loss in the fourth quarter of fiscal 2013 mainly on account of the increasing competitive landscape, a drop in sales of existing BlackBerry 7-based handsets, and growing marketing expenditures for the upcoming BlackBerry 10-based devices.
Recommendation
The nightmare of Research In Motion continues ever since Apple Inc.’s (AAPL) iPhone hit the market. The situation further aggravated once Google Inc. (GOOG) launched its Android software and several handset manufacturers adopted that operating system. However, the just concluded third-quarter of fiscal 2013 ushered some rays of hope as the market is eagerly waiting for the company’s much-hyped BlackBerry 10-based devices. We, therefore, maintain our long-term Neutral recommendation on Research In Motion. Currently, it holds a short-term Zacks Rank #2 (Buy) on the stock.
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