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The bull case for BlackBerry shares

BlackBerry Bull
By Chris Umiastowski on 26 Mar 2013 05:13 pm EDT
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One of the most bullish analysts on the Street with respect to BlackBerry is Gus Papageorgiou from Scotiabank (formerly called Scotia Capital). He recently outlined the reason for his near-term optimism in a Q4 earnings preview report, and I had a read through it.  He makes a good case.

For Q4 (which will be reported Thursday morning), he’s expecting 1.0 million Z10 shipments, improved gross margin and higher than consensus ASP (average selling price). Papageorgiou expects the Z10 to bring in ASPs of $550, which he notes is higher than the $506 Street estimate. I think the Street has played things very conservatively on ASP in the past. Just a few months ago everyone assumed the Z10 would sell for only $400.  Folks - remember when I say “sell for” I mean what BlackBerry sells to the carrier for. Anyway, now analysts expect $506 and Scotia is calling for $550.  If they are right, it’s materially positive.

Scotia thinks revenue will come in at $3.0 billion, 7% higher than Street expectations. But Papageourgiou is not expecting an earnings beat because he figures SG&A expenses (that’s selling general and admin, for the finance newbies) will be higher.  Makes sense to me. BlackBerry is spending more money than it ever has on marketing. And it’s probably only ramping up from here.

Where Scotia really takes a bullish view is on next quarter: Q1 of fiscal 2014.  Papageourgiou expects BlackBerry to deliver $5.3 billion in sales (remember, that’s sequentially higher from his $3 billion estimate for this quarter). He notes that this is 63% higher than consensus expectations, meaning that most analysts expect only a small incremental improvement in May quarter sales.

I don’t know if Scotia is being too aggressive or not.  But the consensus estimate is for less than a 20% rise in revenue next quarter despite a full GLOBAL availability of the Z10 and I would expect a partial quarter of the Q10. These devices sell for substantially more than BB7 phones, and there is a gigantic user base waiting to upgrade.  My *guess* is Papageourgiou is closer to being right than wrong here.

Scotia has a Sector Outperform rating on the stock with a C$23 target price.

Topics: BBRY Editorial

Reader comments

The bull case for BlackBerry shares

59 Comments

I re-iterate 25$ a share is coming BBRY
they have a good product, decent market share, public knowledge
media .. it will get there.

I believe Scotiabank is Canadian thus $25 is for BB, not BBTY(usa)

Didn't Gus used to work for BMP??

Posted via CB10

I just bought back in after the drop. I believe this quarter is going to be the last one BB trades below $15.

Scotia appears to see the big picture of BBRY wrt the global market. Seems like a reasonable analysis. I think there will be a surprise at ER to the upside, considering how very conservative most analysts are with their financial forecasts.

This is all good...However there is a lot of talk of channel checks guessing - using sales outlets as a measure - like those bandied about earlier in the UK release and now regarding the AT&T opening day..
Why don't these analysts, and anyone else for that matter, not just monitor or ask about the takeup of Z10 Apps...
I'm sure that app developers must have a pretty good feel for the downloaded demand for their apps since the Z10 went public...free or otherwise..
I know that Pixelated did this for the Playbook...so I don't know why this isn't a measure used by a good analyst...
I'm certain that if one CHECKED the top TEN Free and TOP Trending Apps (dev #'s)..one would get a pretty good idea how things are going...

Great comment. In the last year I was an analyst I had some data points from developers that I found useful for an indication on sales. But it wasn't enough on its own. But if you had enough vendors sharing sales data it sure would be useful.

Posted via CB10

Yes...there is a thread o CB suggesting 1.5 million Star Wars downloads for BB10 OS. Not able to verify accuracy but if true it's going to be a heck of an ER.

as i read this it dawned on me why BB isnt advertising as much as "we" the BB nation think they should. I think as the money comes in BB is using it on advertising. Its said BB has lots of cash and no debt. Smart way to do business really when you think about it.

I think I will likely barf when I see how much BB is spending on marketing. I don't debate the need, I just hate that it's necessary.
I hope that BB didn't have to discount ASPs to get carriers on board -- that's one concern I have.
I've decided to stop thinking about units shipped in Q4 (ya right). But I hope it's well over 1M and it would be so sweet to see them blow consensus numbers out of the water.
Subscriber base is likely the wildcard that if there is more loss than consensus, the bears will be all over it. If it's a small loss, neutral or (dare I say) gain, the bulls will be running in the streets.
Scotia is definitely the bull of bulls on the street! Can't wait to see who's right. It's cool to be a part of all this.

What is his forecast for units shipped in Q1? That's materially above the street and seems high given Q10 probably won't even be in those numbers for the U.S. market..

Do you think there is any chance mgmt provides some level of guidance for Q1, whether it be units or an approximate revenue range? They must have decent visibility on shipments.

Thanks for the good analysis Christ.
what are you expecting for the numbers this Thursday?
Im expecting the bb10 expenses : promoting, marketing, supply chain, to drop the revenue.
That is why i will not consider the numbers of this quarter for my investment. I need at least two full months with the us numbers to decide if I'm buying more or selling.

I'd like to have your updated option and expectations about this upcoming Quarter 4 results this Thursday.

Posted via CB10

Thanks Chris, your articles are always the light at the end of a negative BlackBerry news day.

Posted from my Z10

Posted via CB10

The analysts are wasting time focusing on the next quarter or two. I did my model, got potential normalized earnings of $1 to $4, took a mid range number of $2, 10x that is $20 target price. So I bought the stock.

Posted via CB10

Care to share the assumptions you use to get to the $1 and $4 of earnings scenarios? I would like to see which of those makes the most (if any) sense.

thanks chris for translating all that finance gibberish to a noob like me.. just bought more stocks today.. i have a feeling blackberry is on an upswing.. and i wanna be ahead of the curve..

This seems to conflict with Thorsten's statement that this quarter would include little Z10 revenue. It is on the last report.

Was he sandbagging?

I believe it was BB10 sales would not be material in the quarter. Materiality is probably something like 1/2 % of revenue which is around $15 million give or take. Maybe at that point they still did not know whether any carriers would actually launch more than a few days before March 2 and they anticipated small initial orders.

You are right. The did say BB10 (not Z10) sales would be immaterial. I think "not material" would hardly be a projection that it wouldn't reach 1/2 of revenue. In a legal sense it means it wouldn't matter or wouldn't factor into the numbers in a significant way.

Anyway, I would think the company would have known when the launch would be during their December call. If they did make a mistake, I would have thought they would have erred on the high side thinking the US carriers would be on board sooner. For them to say not material means the revenue would start coming in the next quarter.

The definition of materiality is something large enough that would affect a reasonable user of the financial statements decisions. I'm an auditor so I know reasonably confidently its probably 1/2 or revenue as a quantitative figure.

If they top 3.2B in sales ...... and turn a profit of more then $0.25/share ..... with 155M shorts ...... I think that these shares will pull a big time NetFlex and will power above $20.00/ share very fast.

I like that Morgan Stanley upgraded based solely on MDM prospects for BES 10.

Being positioned as the lowest cost, most secure and capable of managing iOS and Android as well is a huge cash cow opportunity that as far as I can tell has not been rationalized by most analysts. They keep focusing on hardware sales when MDM can be even more profitable.

What are your thoughts on thus Chris?

Posted via CB10

Kurt,
I can personally speak to the BES10 MDM platform. I'm a financial analyst for a large corporation here in Canada, and we have hundreds of devices on it already. When the street and investors begin to realize the cash cow opportunties of BlackBerry earning $100 for every iOS/android device and $50 for every BlackBerry device, the outlook will be less on the handset business and more on the high margin revenues the MDM platform is capable generating.

Can you clarify as to what types of devices you have on the BES10?
Is it only Z10's? or does it include existing BB's from old.???
And does it include BYOD's ergo IOS and Androids?
Thanks in advance

Chris,

I'd also like to know your thoughts on why Joe Kernen (Ron Burgundy of financial news) and the other bozos at CNBC have such a hard on for BlackBerry. They go out of their way to bash BlackBerry every chance they get.
Their coverage of the US launch was almost like a skit on SNL.

Very pathetic..borderline criminal.

Posted via CB10

Here are the reasons:
1. BB management dont have a media/PR strategy.
2. Short sellers have managed to seduce CNBC... guess what ,means they employed
3. The competition -- Apple, Microsoft, Google -- are all US companies, they dont want any non american company to have a leading platform OS...
4. CNBC folks are basically puppets... put some makeup around a skull that contains brain of 80 IQ

Chris , is T-Mobile's outright price a good indication of ASP as they are presumably selling the phones unsubsidized at their cost as this seems like their business model now. The price of $531.99 seems a bit odd otherwise.

Chris,

As far as I know, Blackberry said last quarter that they were going to change how they report subscriber numbers to now include everyone even if there is no services fees associated with them.

Do you think analysts understand this going into the earnings call?

Although not relevant to this quarter, would "subscribers" include iPhone or Android phones under management of BES when this becomes possible in a few months? I suspect this not "subscribers" at all but is just another form of service revenue per seat license).

Now if only Scotia could get bullish on making their banking App for BB10?

Sent from my iPuh-lease-as-IF

Don't get the sticky app thing. To me a stickied app is just the same as having the app icon. If your gonna swipe to tap a sticked app, why not swipe to rap the icon.

I don't always comment on CrackBerry but when I do its on my Zader10 via CB10

I wish all Crackberry members are holding BBRY shares so we can drive the stocks as well instead of most of readers just trying to comment about BBRY shares. It's damn hard to invest and so easy to speculate. I always remind myself to be an investor and not a speculator as any so-called "experts' guess" is as good as a bum on the street (just quoting Warren Buffet's sentiments here).

I do remain hopeful that BBRY can bounce back. A side note on BBRY's marketing approach, I'm not sure if they are doing something about the reported lack of proper ads and positioning inside AT&T stores but I really do hope they don't miss out simple strategies such as this as they already spent record millions in advertising and marketing.

Chris,

In future posts about stock content with blackberry can you be clear which stock you're referring to please, especially I. Respect to the analyst, brokerage house or analyst company you're highlighting, please?!?? Mixed message without this as BB vs BBTY constantly trades at different price points and revenues are considerably different in the billions if not clear on this.

Thanks.

Posted via CB10

I have been very bullish on BBRY until I got my z10 at the beginning of February. Being of the first to upgrade from Os7 after much waiting and anticipation, for my work usage (I have an iPhone 5 as a personal phone), I must say I was underwhelmed. Too many bugs, too many crashes, very difficult to get used to using the phone for simple tasks, messed up contacts lists, calender that is not working, messages disappearing, and junk apps. And the biggest one for me, no more unlimited global roaming plan. Which I had with the old phone. While, I am still using the phone, a lot of people have dumped it after few weeks and either gone back to their old BBRY phones or other platforms. You can now pick up a hardly used phones for 40 percent discount. Most of the people I talked to have dumped the phone within two weeks. I also was earlier expecting that many BBRY users who left for iPhone and android will try the new z10, I don't see this happening from experience and I meet a lot of business users. In the UAE, where I live and where z10 was the 3rd launch country, the demand is laughable. My friend at the main carrier Etisalat, told me they sold only 4,000 units. The point I am trying to make is that if bullish analysts and fan boys are expecting current and previous owners of BBRY phones to switch in mass, they are mistaken and that has not happened to date. Will q10 change that? I am not so sure. Yes, the keyboard will be a major selling point for business users. But in this day of cost cutting and reduced budgets, I am not sure how many corporates will have the budget for the upgrade. See what is happening to windows. Many companies are still on windows xp.

Posted via CB10

As long as BlackBerry stays a float that's all that matters to me. If they can survive this recent decline, they will only succeed going into the future! BB10 is a solid platform and has a lot of potential!

Mr Heins told the Australian Financial Review last week that he will report a "pretty good cash position" for the quarter. I just hope BB will do better than what analysts have been predicting/ expecting.

I'll say it: I wish I had over a quarter-mil to bet on black!
If BB does well tomorrow and there's a crazy short squeeze to push the shares up past $20, I'll buy a Z10 for someone on CB.

I don't think any of the Wall street analysts have it right. The recently converted bull Misek who said sell at $7 is a joke. You can make out form the way he looks (yes I am being judgmental) that he is a sell-out. Others like Suva, Faucette, Wu have marginally less integrity and less brains than a skunk but far greater powers to spread stink. Some analyst have a target price of $7 or $9. Yes, that right, a little more than cash at hand.

Gus also doesn't have the courage to put a traget as per his analysis. If BBRY will do $5 billion in sales next quarter, then BBRY will make $4 in EPS at least, probably $5 or $6 and in that case we are looking at a $60-70 stock...minimum

Here is something to look forward to,1 million White Z10 sold in the fourth quarter. Verizon ordered the 1 million white Z10. BBRY cant keep up with production of the white Z10. Double impact!