Here’s the latest from from the analysts on BlackBerry

BlackBerry 10
By Chris Umiastowski on 22 Mar 2013 12:20 pm EDT

We’ve had a busy week!  Kevin and team are setup in NYC covering all of the launch stuff in the US.  And from the financial side, there have been a few research reports issued that are worth discussing.

Earlier in the week we had Ehud Gelblum from Morgan Stanley (MS) upgrade the stock to “overweight”, which is equivalent to a buy recommendation at other shops.  He raised his target price from $10 to $22.  A CrackBerry reader was kind enough to email me the full PDF (thanks Antoine!) so I’ve had a chance to look it over. 

It’s notable that the MS upgrade is a two-step recommendation change.  These are rare.  They took their recommendation from the equivalent of sell to buy.  Usually analysts move in one step increments, i.e. from sell to hold, and then from hold to buy once they get more comfortable.  But hold recommendations are viewed as not actionable on Wall Street.  So we have a major equity research shop in the US doing a two-step upgrade days before the US Z10 launch.  Cool.

Why the upgrade?  Gelblum now sees the BlackBerry 10 expanding the company’s average selling price (for devices) and gross margin.  He points out that this expansion  happens despite what we call a lower “attach rate” for service revenue.  Remember that BlackBerry 10 doesn’t come with the same juicy service revenue, so if the mix of devices shifts towards BlackBerry 10 then less customers are “attached” to this service revenue generating machine from “The Ghost of RIM Past”.

Gelblum sees Fiscal 2014 gross margin at 34%, versus the Street consensus of 30%.  That’s a big difference, too.  And I think he’s right.  Why?  A lot of analysts are modeling $500 ASP for the Z10 but I’m now told from a pretty good source that it’s actually over $550.  I’m sure it will drop every quarter, but starting at $550+ is a great sign, and gives BlackBerry a nice jump in gross margins right off the launch.  Well, ok, not right off the launch because of the staggered global launch.  But you know what I mean.

How is the analyst thinking about service revenue?  He’s modeling only half of BlackBerry 10 devices to be attached to a mobile device management (MDM) service, with an assumed $3/month fee for these users, which he notes is about half of what competing MDM companies charge.  In a nutshell, he’s laying out what he suggests could be a conservative estimate.  Analysts who upgrade a stock like to leave themselves some room to raise numbers later, should their thesis pan out. 

Much has been written that Morgan Stanley still doesn’t see BlackBerry as a strong #3 player.  They don’t see the BB10 getting much business from Android or iOS users.  This is exactly what is written in the report, but let me add some context.  He’s saying this to emphasize the limited downside risk in BlackBerry stock. 

Gelblum is essentially saying, “Listen I’m upgrading the stock here big time.  But it’s not because I suddenly think these guys are going to kick everyone else’s ass.  I’m upgrading because I think the BB6/7 fan base will buy these new devices, and the profit from those sales is actually meaningful.  BlackBerry can actually sustain itself as a niche midrange player”.

That’s the way I read the report.  And I’ve read a lot of these reports.

My thoughts?  Obviously we know quite a few iOS and Android users have been making the switch back to BlackBerry base on executive comments so far.  I think Wall Street isn’t willing to fully believe this yet, but they’re paying close attention.  Maybe the return to BlackBerry is a short term thing, where those who previously left had been dying to come back.  If that’s the case, then the MS report is an accurate reflection of things.  But what if the Android and iOS defections continue?  BlackBerry has a LOT of room to increase US market share here.  They only need a little bit to make a big difference in their financials. 

Alright - enough about the Morgan Stanley report.  There are two others I want to mention here.

Cormark analyst Richard Tse also upgraded this week.  I haven’t got the report but there’s a good summary at Cantech Letter which you can read here.

I’m guessing most of you haven’t heard of Cormark because they are a small, private Canadian investment dealer.  But they also happen to be one of the best shops on Bay Street, and their BlackBerry guy is Richard Tse, a super nice guy and very well respected analyst who’s been around a long time. 

He raised his target from $14 to $20, and took his recommendation from hold to buy.  He sees the company being profitable this year, versus the consensus estimate of a loss. 

Finally, BlackBerry was downgraded by Tom Astle from Bryon Capital.  Remember Byron is another small shop, but Astle is probably the best known tech analyst in all of Canada.  One of the benefits of being at a small shop is way less legacy crap to deal with.  You’d never catch an analyst at a big shop tweeting about his research.  But Astle tweeted out a link to his reasoning behind the downgrade. 

The tweet links to an email he sent to clients and also made public (which is awesome). 

Since the entire note is very short and easy to understand for non-finance people, here it is:

While we continue to believe Blackberry is on a recovery path, we would no longer be chasing the stock at these levels, and we would move to a more cautious HOLD and buy-on-dip strategy.
The stock, at over $16.00, is starting to at least partially price in our best guess (and we emphasize “guess”) at earnings power in C2014 of about $1.60/sh. This is based on a set of assumptions that we agree are pretty hard to nail down, but basically we think the stock has priced in about 30 million units/year of BB10 products.
On a more short-term basis, we are also concerned that unit sales in the February quarter to be reported at the end of this month will not be that exciting, given the staged launch and some data points from the Jabil results on Wednesday. We had modelled 1 million BB10 units for that quarter, but we expect something less than that now. We are more hopeful for margins as we think initial sales of the Z10 have carried strong ASPs.
We’ve liked the stock since it was below $9.00, so we are pretty pleased with the return, and we would look to be more constructive on the stock once we get an update at the end of the month.

My thoughts:  Even the downgrade from Astle was a pretty gentle downgrade.  He’s simply recommending taking a pause here, in case the stock pulls back when numbers come out next week and they aren’t terribly exciting.  Guess what?  That kind of thing happens all the time despite the fact that BlackBerry is on the road to recovery.  It’s a reasonable thing to do given the win that Astle’s call has been so far.  He was earlier to upgrade than nearly everyone else. 

So that’s it for the analyst wrap up.  If you have questions or comments about any of this let me know in the comments.  I do read them and I’ll answer as many as I can in future posts.

Topics: BBRY Editorial

Reader comments

Here’s the latest from from the analysts on BlackBerry


$22 price target seems pretty fair to me. I think an earnings surprise and strong demand for the Q10 will drive the stock up, hopefully hit 23-24 by May

Good as usual Chris. Nice to hear a rationale investment comment without an emotional screed to follow.

we never thought BBRY would make it to launch now we have new APPs by the day reported on Crackberry so I think and believe $20 target on BBRY will be backed up by respected earnings.

As usual great informative post from Chris, always worth reading this guy's post's. A lot of so called tech sites out there should follow Chris and cut and paste his comments. Not only would they then make for better reading, but they would also look to be more informed.

Do you think that the Q1 2013 results will be lackluster or will they surprise us? I am not expecting anything amazing due to the staggered launch and a much reduced timeframe this quarter for actual Z10 sales, but is it possible we'll be "blown away"????

To be honest, I think that the ER on Mar 28 will surprise on the upside. The reason is that BBRY reports based on *shipments* to carriers, not sales. With a new phone it is easy to report good numbers.

Sell-through is more important, but only the carriers could give specific sell-through numbers and they probably don't want to share that info.

The best public gauges of success are the independent surveys by the firms like IDC.

It is difficult to say because bears could spin the announcement and say "only 1 million units were sold during the month while Android is activating 1 million units daily" or "Yes, XXXX units were sold but can they continue at this pace? Our channel check indicate no".

That kind of analysis and reporting has been going on for years. "Sure they managed to beat this quarter, but next quarter, well just you watch, they will tank next or the one after that......but it WILL happen someday. It's inevitable. "

From my sweet BB10 Neutrino powered Z10 :D

with the statement you have of average ASP of 550 that bodes very well compared to previously listed 200+ish for the old devices for the last few quarters. I dont expect this report to be the one we are all waiting for this for me is the the earnings report that will show recovery and improvement for BlackBerry. I am hoping for the next earning report to see my predictions pan out with the USA now getting devices to sell Canada UK UAE and most of the world i hope to see a great earnings report for next q or q1 of BlackBerrys new fiscal year start point.

Hoping because i have had the predicitons based on what ive scoped all around the web on forums articles and seeing people trun an eye to BlackBerry to wanting it and wanting to try it got me happy. My overall prediction for stock on just a guess and a hope for end of year will be above $50 altho i am Long BlackBerry stock owner i hope it pans out.

I really wonder how many Blackberry made sales SANS the US customers. This will be interesting.

Chris, The subsciber base of 79m, that is The BIS/BES subscriber base(or basically every BB user pre BB10), correct? As BlackBerry also uses the active BBM users as a different number, as not all BB users are BBM users. My question is, will Wall Street use the decline in "Subsciber Base" (those current users upgrading) as a more impactful number versus unit sales? Or is the GM enough to offset the service revenues. I've read mixed reports, and I usually trust your sentiments over others. I'm thinking the bears will jump all over this if there is a dramatic drop in subscribers, even if the unit sales far out weighs that drop. Would you care to touch on this briefly? Thanks

Unfortunately for an investor, the bears are going to claim the world is coming to an end when the number of subscribers likely decreases from 79MM in the next Qtr report, as mentioned by another poster I ready somewhere which I agree with assessment. This is not necessary a bad thing because the mix of BBOS / BB10 users will shift as time goes on and for each shift the number of subscribers decreases because, as we know, BB10 no longer requires a BIS/BES to work BUT as mentioned in this article the ASP will increase to make up the shortfall from a financial perspective. This will help increase near term cashflow to work on other things and even possibly work on a BIS10 to provide a revenue stream to which personally I'm hopeful for.

Posted via CB10

Subscribers will go up next quarter as BlackBerry is changing the way it counts its subscriber base.

Bernstein Research - Curious if anyone has a viewpoint on them. I have heard they are among the most respected sell side research outfits. Analyst went bullish on Feb 4th claiming it should trade in $20-$25 range once a decent launch is priced in. He also has math to indicate they can break-even selling ~2mm higher end bb10 devices per Q...not the 4 or 5mm some of the bears suggest is required. He was also a noted bear since 2010, well before others so seems to have called this one reasonably well. One of his points that isn't often discussed is the drain of channel inventories that has take place over the last 4 quarters. i.e. approx. 8-10mm more blackberry devices have been sold to end user vs. sold into the channel by blackberry...Based on his chart, channel inventories pre-launch had come all the way down to sub 1mm units vs. a more normal level of 10mm units plus. This is probably normal with transitions but obviously Blackberry will have to sell-in at least as much as sell thru going forward, and possibly a fair bit more. To put numbers to the last 3Q's, sell thru was 10.5MM (Q1), 10.4MM(Q2), 8.4MM(Q3). I believe Blackberry's sell in was just 7.8MM, 7.4MM and 6.9MM, respectively...this could cause a dramatic swing should carriers re-stock inventory.

Interesting. We are already expecting a pop from Z10 shipments. If there is also a pop from OS7 shipments, that would be amazing!

2014 you will see 120 waterloo grad thinks so and i think, with 6 new products coming out and a massive marketing effort bb is back in the money .waterloo grad,where are u did seeking alpha bar u from thier domain .welcome to was really good to hear u fight back at all the negative shit thrown at bb.we need more bb heroes

Great article and summary. It should also be noted that the Morgan upgrade almost completely discounts smartphone sales....they are basically bullish on Blackberry's MDM offering to Enterprise as the main growth driver going forward.

I'd also like to know your thoughts on how badly the US news outlets (mainly CNBC) seem to bash BBRY any chance they can get. Almost like Blackberry ran over one of their kids or something. Joe Kernen on CNBC is especially nasty...and very uninformed on blackberry. He's like the Ron Burgandy of financial reporting.

Bernstein are a very high quality independent research house who pride themselves on a very detailed fundamental research process. This analyst was negative and right on Blackberry for a long time based on the older phones losing share in the US which worked out for him, so it's worth noting he looked at the new information (BB10 launch), saw that it didn't support his old thesis anymore and changed his mind as a result.

I think it might be worthwhile for Chris to speak to the time frame analysts work to. Along with that there could be a discussion about the concept of "intrinsic value" at the core of many of the best investors approach. Depending on your frame of reference you could say the analyst who had a "sell" rating and $6 price target into the fall was bang on. On the other hand, I think it is fair to say that $6 was a wacky price for BlackBerry to hit and to justify that price was looney tunes. There is a big difference from predicting the short term swings in share price versus identifying the long term underlying value. Sell side analysts focus on the former while the greatest investors focus on the latter.

While the Morgan Stanley analyst's price target is $22, as Chris noted it's based on pretty conservative assumptions with plenty of scope for upward revision- indeed, he also briefly goes through a "bull case" scenario where the company earns $2.32 per share which he values at 15x to support a $35 target.

BB has set a fairly high expectations for sales, and I can only assume that they've done it deliberately. It's one thing to try to spin your launch numbers to maintain consumer interest, but if BB has deliberately mischaracterized their own sales numbers, as a shareholder I'll be choked.

I'd still like to see numbers north of 1 mil sales to March 2nd, and anything below 800k will have me looking around for a class-action suit.

I heard about the downgrade a few days ago and it seemed strange. But now reading Chris' report it makes more sense.

It is a conservative downgrade that acknowledges there are a lot of unanswered questions. Seems reasonable to me, even if I remain in a long position.

Hey Chris - Great article. I'm not a financial guy by any stretch of the imganitation, but I always like reading your articles. You can take the 'financial language' and turn it into english and easy to read and understand. Even though the stock seems to go up a little, then down a little, and analysts seem to change their mind every month or so from buy to hold to sell and vice versa, the impression I have from all of this is a slow upward trend. Even though there are some dips and advise to sell, correct me if I'm wrong, but it seems that in general, the trend seems to keep going up, which to me is the important part, since most investors are for the long term, not especially the short term. Thanks again for a great intelligent article.

Although the first two comments are more positive, i really agree with everything Tom Astle had to say. He seems to be the most informed and logical when looking at the facts. He understands that basically 1 million Z10 devices sold, while amazing for 1 month sales in a couple countries, doesn't translate into a rocketing Stock price. The margins are the key. The next quarter reporting in June is where the true numbers will be revealed. Go Blackberry!

Umi are you concerned that Thor announced that BB received an order for 1 million units but very little detail was provided regarding this order? Where they required by the SEC to announce this order because it was a material event? If it was a material event, aren't additional details warranted?

I wrote a post about this. Bottom line it is very typical for companies to press release large orders without disclosing customer names or specific shipment details.

I am using the CB app to post this so I don't have a link for you, bit read my story on it and I think your questions are answered there.

They probably could have decided it wasn't a material change and not press released. But it was a chest pounding moment.

Posted via CB10

I went out and bought some shares yesterday, trusting that with the US launch, Q Call, Q10 launch etc we will be looking at a nice steady upstream. Yet today after the first launch of Z10 stocks spiked to 16.82 and shot down to below 16 again. Any indication to what this is caused by? Could it be the CNET interview with thor and the latter bashing samsung for their of security ? Maybe slipping a note that a better bb10 device is in the making? Some eyebrows raised here. Bdw great article well done.

Posted via CB10

what a freaking bum,they gave this guy a free Z10 , he's a shortie,7 dollars,give me a break,give it up already,bb's down 8% today ,guess what we'll hear tommorow,all i can say is we have to live with these people they're our neighbors ,pity EH!!!

Just switched from my Android (Note) device to the Z10 and added 400 shares of blackberry to make portfolio.

Posted via CB10

Chris, I have a question. Most analyst reports always focus on BBRY handset sales and their revenue from services (which makes sense of course). My question is about revenues generated from QNX outside of the handset business. I haven't heard that mentioned once in analyst reports, but BBRY likes to boast about how QNX is used in several embedded systems etc etc, so it seems like it should be kind of a big deal, but it's just not on anyone's radar. Analysts. Why u no mention QNX?

Never been one to point out errors, but you wrote "from from" in the title.
Always enjoy your breakdown of the often confusing world of stocks and analysts.


"How is the analyst thinking about service revenue? He’s modeling only half of BlackBerry 10 devices to be attached to a mobile device management (MDM) service, with an assumed $3/month fee for these users, which he notes is about half of what competing MDM companies charge. In a nutshell, he’s laying out what he suggests could be a conservative estimate. Analysts who upgrade a stock like to leave themselves some room to raise numbers later, should their thesis pan out"

Trellia, AirWatch two major MDM's recommended by Gartner offer $3.50/$3 per month per user for MDM services with a 25 user minimum. This was early 2012 so I'm quite aware of this not being a conservative estimate. Rogers also offers an MDM solution for iOS and Android using Trellia since mid summer 2012. This part of your article requires much further research.


Thanks for the info. Remember it wasn't my research. I was reporting on what another analyst used as justification for his own numbers.

Posted via CB10

Adding a "Like" button would spare you all another "Thanks!" post, but thanks are due to Chris again.

Posted via CB10

It seems to me that we are making an error to assume volumes of Android and ioS users are buying Z10. I looked and the only thing the company officially said was that percentages of buyers "didn't have a blackberry". Or came from "another platform". Last year feature phone sales far outpaced smartphone sales globally. It stands to reason that these new Z10 buyers could just be former feature phone users. I wish I could find what percentage of iOS and Android new users came from feature phones to compare.

This is important to know because BBRY is leading the market to believe they are winning back the high profit smartphone market share. The market media is believing BBRY and reporting it as winning iOS and Android users back.

There could be a nasty correction if this belief wasn't what we are all assuming.

Here is the latest from the street.
BlackBerry Z10 currently rank number 1 in user rating. A very strong performance right out of the gate after barely two days in the market.