Looking at BlackBerry’s Q4 gross margin spike

By Chris Umiastowski on 9 Apr 2013 03:49 pm EDT
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When BlackBerry announced its Q4 results on March 28 we celebrated a Street-beating earnings result. Even if you ignore the tax benefit that the company recorded, BlackBerry delivered much better financial results than expected.

A big part of that beat came from the gross margin line, which came in at 40% versus the low 30's estimates. In the financial press release, the company said the earnings improvement came from improved ASPs and higher margin on hardware. 

Analyst estimates on Z10 gross margins differ widely. We have some analysts suggesting margins are 40% on the new hardware. Then we have others, such as GMP’s Deepak Kaushal, who believe Z10 margins started their journey closer to 20%, as I wrote about here.

After looking at the numbers more carefully, I think there is some validity to GMP’s view. I know from experience that BlackBerry usually sees weaker margins when a device first rolls out.  Margins usually rise as production costs stabilize, volumes rise, and manufacturing yields improve. The company's own Chief Financial Officer, Brian Bidulka, has talked about this on conference calls, and any analyst worth his or her salt knows this history.

Anyway, 20% margin on the Z10 is not a disaster. It’s a starting point and I think it’s logical to expect it to rise towards 30% within 2 quarters of release. This is fairly normal for BlackBerry.  But the important point, and one that no bear will argue, is that BlackBerry 10 margins are a huge step up from the essentially zero margin that BB7 was delivering recently. In fact, for a while BB7 devices were being sold at an estimated 5% negative margin. Double digit margin on the Z10? That’s a huge win to start. 

BlackBerry 10 margins are a huge step up from the essentially zero margin that BB7 was delivering

Now let’s look a bit more closely at the numbers. Because I think the numbers back up GMP’s rationale for saying the Z10 isn’t the only reason gross margin climbed back to 40%.

I apologize if this gets too accounting-geeky for some of you, but accounting matters here. Gross margin is the percentage of dollars that are left once manufacturing costs are subtracted from revenue. Included in manufacturing costs are costs known as “amortization”. 

Say you buy an expensive machine to manufacture devices. You write down the cost of that machine slightly every quarter, and you attribute that quarterly write down as an expense against manufacturing. That’s called “property plant and equipment” amortization. BlackBerry had $77 million of such amortization included in “costs of goods sold” (COGS) this quarter versus $87 million last quarter. That’s a tiny change, and helps boost gross margin by a whopping 0.4%.  Not relevant.

The other kind of amortization on the COGS line is called “intangible”, meaning it’s a write down in the value of something you can’t physically touch. Usually, for BlackBerry, these are license agreements.  Intellectual property is complicated, but BlackBerry uses its patent arsenal to offset the value of patent licenses it needs to buy from other companies.  It enters into cross-licensing agreements, and these agreements usually mean that BlackBerry will pay a certain fee to another company based on the volume of shipments.  When the shipments occur, the value of the license (paid in advance) is amortized. 

If shipment volume decreases, the amortization expense also decreases, and depending on how the math shakes out, this may help margin.  It just so happens that BlackBerry recorded only $136 million of intangible amortization on the COGS line in Q4, compared to $263 million in Q3. That’s a big difference, and one that isn’t explained solely by the decreased shipment volume of BB7 devices. So I have to believe the $127 change in COGS-related intangibles helped gross margin, possibly up to the full amount of 4.7%. That’s about half of the overall gross margin improvement explained right there. It has nothing to do with BB10.

Also, BlackBerry has been restructuring with its cost optimization program called CORE. In Q4, CORE expenses attributed to gross margin were negative $4 million.  Yes, the company actually had a gross margin expense reversal in Q4, obviously realizing it spent less than it thought it had at the end of Q3. This compares to a $32 million charge to COGS in Q3, meaning the quarter-over-quarter difference was $36 million. That’s another 1.3% improvement in gross margin, and again, it has nothing to do with the Z10.

I hope that wasn’t too numbers heavy, but my point is this: Gross margin increased in Q4 in part due to the Z10, but also in part due to amortization and CORE expense changes. I believe gross margin has more room to climb simply because the Z10 is likely not at peak margin yet. Give it another couple of quarters.

In addition, the Q10 and other BB10 devices are coming. The mix will shift from BB7 towards BB10 quickly. This will help gross margins. I think this leaves BlackBerry’s income statement in a nice uptrend over this year.

That’s a good thing.

Topics: BBRY Editorial

76 comments

Fridaybird

Sorry. . .what did you say?

Posted via CB10

Dave Bourque

BlackBerry will win the mobile war of 2013!

hamletz90

I'm pro-BlackBerry, bull on BBRY and love the Z10, but 2013 is way to early for BlackBerry to regain significant market share if it ever does.

Dave Bourque

You don't think BBRY will have the highest growth increases compared to Samsung/androids and apple ?

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independentvolume

I think Windows Phone will.

mathking606

your prob right but bb only needs a significant increase and there are way more wp out there to sell (variety).

Dave Bourque

I honestly cannot support windows at all not after the failure that is win8, with that said people will certainly be hesitant to give win8 phone a try.

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independentvolume

This is true. Just like they are hesitant to give BB10 a try after past experiences with BlackBerry. I like the Z10, but also think the 920, 928, ect are great phones as well. Throw in all of the budget models that Nokia is pumping out and you have a recipe for a ton of sales. The only OS I can't stand is Android. If I wanted everyone to know my info I would send them a post card.

mikeycollins13

Dude, don't know about you, but have never seen a windows phone in the wild.

Has anybody ever seen one?

Posted via CB10

independentvolume

Not many, but more than Blackberries. It's been years since I've seen a BlackBerry. Of course I'm in the states. I know other countries are different.

independentvolume

I would like to add that I'm in the market for either a Z10 or Lumia 928. If Verizon shows they can update the Z10 before the 928 is available I'm in. Got burned by the storm.

Schmurf

You got burned by the Storm? Man, that was years ago! Time to move on. I have a Z10 and it's very slick. The gesture-based system is just so natural for me.

nquyen

i've only EVER seen ONE windows phone, and that person switched to an iPhone. On the other hand I still see BlackBerrys every day.
edit- I live in America

birdman_38

Only 3 of 100 subscribers in the US own a Windows Phone

BBVegasGirl80

I only know one person who owns one. BBs I still see quite a bit.

G-bone

???

#BB10BELIEVE

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cheadley1

As always great article. Thanks for breaking down the financial side of all things Blackberry!

r0v3rT3N

Sorry, this spot is taken.
Another awesome article, Chris!

R Field

Good article yet again Chris. Thanks for breaking down the numbers.

CB10- BlackBerry Z10

SMCNI1968

How fast do component prices deflate?

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AjaxMilanBarcaSC

Isn't amortization only used for intangible assets? For PP&E it is more widely referred as depreciation. Nitpicky yes but it's best to be exact when discussing financial/accounting concepts!

Alvin Tang

I have heard of this differentiation of terms used only in the US though. In Canada, the term amortization is used for both PP&E as well as intangible assets.

Chris Umiastowski

Normally that has been the case.  I don't know (or care, really) why it changed.  But now they're just calling PP&E depreciation "amortization".

Reference:

http://press.blackberry.com/content/dam/rim/press/PDF/Financial/FY2013/Q4FY13_final_filing.pdf

 

(top of page 31)

 

Jtaylor1986

Are you positive amortization is included in COGS. I admit i am not familiar with US GAAP but this seems abit strange to me as I have never seen it included as a direct cost other than in a leasing scenario. I just double checked the FY13 statements and amortization is included in operating expenses where I would expect to see it. Please clarify

Chris Umiastowski

You need to look at the detailed financials. Otherwise you are only seeing amortization that falls into OpEx. Search for the term "Cost of Sales" in the full report. You'll find it in some tables.

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bb10canuck

Combine improved p&l with a very strong balance sheet and bbry is in good financial health, not going away anytime soon

Posted via CB10

pmich

2 of my passions in one post. Finance and Blackberry. I'd love to have a dinner and talk shop about it for hours!

bluetroll

Thanks for the breakdown.

Always look forward to your input.

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flacko

My IQ rises each time I read one of Chris's articles . Well done Chris!

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crohns

Great article. It's time to buy some shares i think

Nate650

I'm sure margins was one of the reasons BlackBerry decided to go with slightly old components for the Z10/Q10. The good news is BB10 runs quite buttery on said hardware.

jay_men

I concur, another great and informative article. Well explained in putting things into context where the finance world is concerned.

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mikeycollins13

Agreed and smart move
Who needs 8 quad processor on Samsung s4?

Like the nuclear arms race, the hardware race has reached a point of maximum utility.

Any improvement to hardware can only serve battery life at this point imho.

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WilsonWang

I think the Q10 would warrant an even higher gross margin. A full touch screen device cost approximately 20-30% more to make. Given that if they sell it AT&T he same ASP as the z10, we can see a substantial rise in both margins and profits.

Dave79

I think the Q10 will have higher margins because they will sell it for a bit more than the Z10 due to the fact that the Q10 have no competitors. People that buys the Q10 would never buy anything else than BlackBerry but with the Z10 they had to price it in a way that they could win back some market share.

Knightcrawler

@chris

So does this mean the gross margins will drop at the next earnings call?

Posted via CB10

lvalery

Hi Chris,
Nice article. I have tried to build my estimates for Q1 2014, what would you say?
My estimates based on q4 2013 report and earning call comments
Estimates :
1. Cost of sales - other cost assumption of 200M, the rest hardware (the wildest one)
2. Q3 ASP as a base to Q4 ASP of BB7+playbook devices ~$229 for BB7 leave ~$450 for BB10 devices
3. 3.5M bb10 , 3.5M BB7 & 350K playbook sales which I believe realistic
4. 20% tax (in cc has been told 25% flat going forward, but I think they will have some refunds from last year loss)
5. 40% increase in Selling, marketing and administration & 5% in R&D
6. Q1 cost similar to Q4 as mentioned in cc that cost has been reduced.
7. Assumption of another 4% decrease in service revenue.

Just my 2 cent , any comments?

For the three months ended
March 2,2013 December 1,2012 Q1 2014 estimate
Revenue 2,678 2,727 3405
Cost of sales 1,603 1,897 1,851
Gross margin 1,075 830 1,554
Gross margin % 40.1% 30.4% 45.6%
Hardware revenue % 61.0% 60.0% 70.6%
Hardware revenue 1633.58 1636.2 2402.4
other revenue 1,044 1,091 1002.6
Hardware cost assumption 1,403 1,697 1,651
other cost assumption of 200 200 200 200
bb6-7 5 6.9 3.5
playbook 0.37 0.255 0.35
bb10 1 3.5
total devices 6.37 7.155 7.35
ASP 256 229 327
ASC (cost) 225 237 225

Operating expenses
Research and development 383 393 402.15
Selling, marketing and administration 523 487 732.2
Amortization 181 180 181
Impairment of goodwill
Total Operating expenses 1087 1060 1315.35

Operating income (loss) -12 -230 239
Investment income (loss), net -6 18 3
Income (loss) from continuing operations
before income taxes -18 -212 242
Provision for (recovery of) income taxes -112 -226 48
Income (loss) from continuing operations 94 14 193
Income (loss) from discontinued operations, net of 4 -5 0
Net income (loss) 98 9 193
Earnings (loss) per share
Total basic and diluted earnings (loss) per share 0.187 0.017 0.368
Basic 524,160 524,160 524,684
Diluted 527,222 524,852 527,749 Less

comments
1. I got last year ASP $229 versus $237 cost or ~4% close to 5% negative margin. (it would be 5% if decrease other cost to $180M from $200 for q3 2013.In this case Q1 2014 EPS would be lower ~23c
2. I expected Q10 would not be more expensive than Z10 but I was wrong, it may contribute up to ASP but also may put a presser on sells as currently it will the most expensive device in the market (at least in Canada)
3. According to the spreadsheet, current Z10 margins ~15%

123berryaddicted

That's a lot of numbers. I love my  Z10

RIM99

Good God almighty. Chris - hire this guy! Or at least have a working lunch with him :)

a1s2d3f4g5

Ivalery

I think your numbers are not bad just glancing at them.
I think BB7 shipments will be higher than 3.5 mill next q. Channel inventory has decreased by 10 mill over the last two years and is probably about empty. Sell-thru of BB7 last Q were 7 mill or so. I think they can ship 5+ mill this q.
It would be very nice to have 3.5 mill BB10 shipments, not unreasonable but I think that's on the high side there. I would guess 2.5 mill but 3.5 is possible if q10 is a hit
ASP is probably too favorable in your model considering bb7/10 mix
You have 25% tax rate which but they should have Net Operating Loss carryforwards from last year.

Not a bad model overall. I agree with you that Q1 will be profitable.

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El Platanero

I think I went blind just scrolling through your comment. you know he also has an email right?

Posted via CB10

zander2652

Thanks for the insight, Chris. Informative as always. I have an article request. Any way you can write out an article explaining BES10 in terms of how it can impact blackberry's earnings? I read that the analyst Misek is basing his bullish outlook to BES10 because he expects it to be a cashcow for blackberry. If I understood him correctly, he stated that even if blackberry exits the hardware market, they can still be profitable. Just wondering if you can shed some light on BES10 and on how it compares to other products that are available. This would be an article that would really interest me. Thanks.

herculesinwyoming

Dang dude thanks! Your a bright one, and i actually learned some new stuff from this article.

Nate650

Sadly you didn't learn from the article that "your" in this case is a misspelling. :D

El Platanero

Hahahaha^this

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vgorous

Can't stop saying how much of I love the new bb10!

bjw408h

Well done. Thank you.

a1s2d3f4g5

Chris,
Another thorough piece but I must say I am little disappointed in your assumptions here as usually you hit the nail on the head.
We know that bb10 was introduced and shipped 1m. Bb7 was 5 or 5.5 m I can't recall but in that range.
We know that BB7 hardware last Q was unprofitable. -5% to -10% gross margin.
Finally we have evidence that in markets where Bb10 was released, sales of the Bold line were cannibalized more than the Curve line.
We have heard stories of very slow Bold sales recently.
We can assume that Curve sales made up the vast majority of BB7 shipments.
We know that Curves have a lower ASP than Bold. I think we can safely assume that the margins on Curves are lower than on Bolds.
Bb7 margins probably declined in the quarter. That is offset by the fact that fewer of them were sold. Call it a push. I think the amortization you discuss is already included in gross margin analysis so there is no need to add it back. (BlackBerry calculates COGS amort and Capex amort separately if I recall, and COGS amort is included in margins every quarter. Correct me if I'm wrong here)
So for such a dramatic gross margin improvement this quarter. Bb10 margins would have to be higher than 20% I am almost certain.
If you disagree with this I can come back some time in the next couple of weeks and go through the quarterly report to put together some hard numbers. I'm pretty sure the numbers will back me up here.

Posted via CB10

Chris Umiastowski

You wrote:  "I think the amortization you discuss is already included in gross margin analysis so there is no need to add it back."

Dude - I'm not adding back anything to gross margin.  I'm calculating where the improvement came from.  I'm splitting the gross margin improvement into its components, showing that a significant chunk of the boost came from CORE and reduced intangible amortization.  

You wrote:  "BlackBerry calculates COGS amort and Capex amort separately if I recall, and COGS amort is included in margins every quarter. Correct me if I'm wrong here"

Glad you understand this.  

a1s2d3f4g5

Chris, sorry maybe I should have been more respectful. I appreciate your article and think it has some great points.

When I said that about amortization I was referring to the calculations I was doing in my own post, not your calculations in the main thread. It is a good point that some of the margin improvement is due to reduced amortization. My point is that some of the reduction in COGS amortization was probably due to the shifting product mix of BB10 sales replacing Bold sales, and the 2 million fewer BB7 units shipped.

Let's look at it another way: Revenues were $2.68 billion. Cost of sales was $1.6 billion.

Service/software/other revenues were 1.04 billion. Assuming a 90% service/software margin, cost of services was about $100 million.

Device revenues were $1.64 billion. Device COGS were about $1.5 billion.

They shipped 1 million BB10 phones and 5 million BB7. We don't know ASP, but we can make a fair guess of about $500 for BB10 and $228 for BB7. That is $500 million in BB10 sales and $1.14 billion in BB7. I think it is actually slightly higher for BB10 because last quarter (if I recall) BB7 ASP was about that number - $230 or so. This quarter the mix shifted more to Curves so ASP probably declined for BB7 slightly.

We know that last quarter BlackBerry sold BB7 devices at a high-single-digit or low-double-digit loss (especially Curves). If we pencil in even a 5% loss on $1.14 billion, you get $1.2 billion in costs of BB7. I think 5% loss is actually better than they did last quarter (Q3, before BB10) on hardware sales, so that takes into account some of the amortization improvement you were talking about.

That leaves $300 million in COGS for BB10, and $500 million of revenues. Using these fairly conservative numbers, you are at 40% margins. To get to 20% margins, you have to assume 95% margins on service revenue, and BB7 phones were sold at cost (break even). I think that performance from the service/BB7 portfolio would be much stronger than previous quarters, a little bit out of line, even considering the improved amortization. It would surprise me if that's where the margin improvement came from.

Maybe I am incorrect, but just wanted to put my two cents out there. I don't want to contradict you necessarily just put another viewpoint out there to consider. Thanks.

D5V1D

What is the minimum IQ requirement to comment on this article?

fedakd

Z10 margins are over 40%. Just an FYI

Chris Umiastowski

Prove it. Otherwise totally useless comment.

DetlevCM

Plenty of BlackBerry phones here in the UK.
(Windows Phone, what is that? And I am wondering whether I should move to Linux whenever I buy the next computer given Windows 8... but hey, I don't need to decide yet.)

Back on BlackBerry, people seem to get obsessed with market share which is meaningless. Who cares about market share except financial vultures that destroy companies with their profit demand?
If BlackBerry can retain a stable or slightly increasing absolute number of customers then all is well too. Just look at Leica, their market share is insignificant, however they are doibg very well. With a solid absolute number of uses and a stop to the user number decline, BlackBerry can develop a sustainable business model.

This also Comes back to quality instead of quantity. Do what you do well rather than producing a lot of half baked junk - and fully commit to what you are doing. (Just think about Google wave - nice concept, left to rot and then killed off...)

Posted via CB10

silversun10

Fewer sales of the old models already improves margins and most likely margins of the old models improved a little as well as a result of overall operations improvements....

elicash

Re: amortization drop. I would think its actually better for sustainability that z10 phones had 20-25% initial GMs due to lower initial volumes and yield on production. It means there is room for gains moving forward as volumes and efficiencies ramp. The amortization was frighteningly high in FY2013, so the drop is normalizing and should benefit the reported GMs over the coming Q's. If initial margins were lower, as we move from 1mm z10s per Q, to 3-4mm BB10s per Q, hardware margins will accelerate even if at 20-25% (but i assume they move north of 30%), combined with lower amortization in cogs vs. prior year.

elicash

Credit Suisse was out with a report on this issue as well (amortization). I can't take their price target seriously. $10 based on a 0.3x revenue multiple of projected 2015 revenues. At least put some intellectual rigor to come up with that number of $10.

Schmurf

Chris, another insightful article. It's nice to see the analysis. I find quite often that analysts do their work and then make their pronouncements as if it is gospel fact. Any reality to the contrary is either "disappointing" (when lower than expected) or "surprising" (when higher than expected). Really, those analysts are working in the dark and supposing based on what little they can see. Your articles don't take that approach; you are quite upfront that you don't know the real details, and I like that. Please keep up the good work!

kill_9

All the accounting trickery allowed by GAP won't save BlackBerry unless they address the numerous issues plaguing BlackBerry OS 10. I had hoped with the two year delay releasing BlackBerry OS 10 that the traditional German engineering excellence would result in the perfectly implemented reboot of the company formerly known as Research In Motion.

Posted via CB10 from the BlackBerry Z10

jic999

As THOR said the numbers are the numbers , Chris keep informing us, and what Z10 vs Galaxy Note 2 which freezes all the time !!

Jordan Gibson1

Chris' posts always give me a sigh relief after dealing with BB haters all day.

Rootbrian

Putting the numbers together is just awesome and insightful too. I can't get enough of those articles. :)

riya jain

The margin on Z10 is much higher than 20%. The correct way to reverse calculate BBZ10 margins would be to calculate the cash cost per unit of handset. You will have to reduce the amortization and CORE charges from hardware COGS. So basically 4Q13 COGS breakup is about US$140m service and software costs (assuming 86% GP margin which is annual average). Then the balancing figure is about US$1.4bn for hardware COGS. Now from this, reduce US$200m of amortization and core charges and you get to adjusted hardware COGS of US$1.2bn for 4Q13. By the same method the adjusted hardware COGS for 3Q13 was about US$1.3bn which translated into BB per unit hardware COGS of about US$184. Assuming US$184/unit on old BB devices in 4Q13, you get to US$980M of old hardware cost in 4Q13. Hence the balancing figure of US$250M is BB10 cost. Now assuming a ASP of about US$430 for Z10, you get to a margin of 42% for Z10. The ASP of BB old devices is about US$226 per unit as per 3Q13 financials. You can assume the same ASP for BB old devices in 4Q13. This gives you a margin of about 19% on the old BB devices; 42% for Z10 and consolidated pure hardware margin of about 25% in 4Q13. From this cash Gross profit, you can now reduce the US$200m of amortization and CORE expenses.

Chris Umiastowski

Hi there riya - ok le's see if I can re-state what you said for clarity.  Before I do, just keep in mind I didn't calculate a 20% gross margin for the Z10.  GMP did the calc and I'm just looking at the factors that affected gross margin to illustrate that much of the improvement wasn't related to the Z10.  

 

Ok onto what you said - is this your view?

1) You take total COGS and back out software/service COGS by multiplying its known revenue by assumed 86% margin on soft/services.  This gives you $1.3 billion in hardware COGS.

2) You assume $184/unit on old BB devices times however many sold to arrive at $980M in old device cost, therefore the difference (what's left over) is BB10 device cost, and you get $250M.  I further assume that since we know they sold about a million units you're getting at $250 per unit as your cash cost estimate?

3) You assume an ASP of $430 on these devices, which leads you to $430-250 = $180, and 180 over 430 = 42%

Assuming my interpretation of your analysis is correct, let's dig into it: 

  • How are you dealing with the intangible amortization?  I haven't looked at the financials since I wrote this post but I don't think BBRY disclosed the in-COGS intanbible amortization split between hardware and software/services.  Given how much it changed in the quarter, I think this introduces a huge unknown into the calculation.
  • You are assuming $184/unit on the older BB devices, but we already know the ASP was significantly higher than that (you wrote $226 sounds right) and we also know the devices were sold close to break even (I think about 5% loss prior to BB10 launching).  In other words, I think your BBOS device cash cost number is too low.  Impossible to prove, unfortunately 

Anyway, there are lots of ways to guess at Z10 margins and I think your method is totally fine. It's just that there are too many unknowns and we'll never really know if the end number is correct or not.  That's why I prefer to look at what actually drove the gross margin line, showing that much of the movement was not related to the introduction of the Z10.  And remember, this isn't a bearish piece ... it shows that there is still plenty of room for the margins to expand.

Hope that makes sense.  Good discussion.  

riya jain

well intangible has to be added to COGS but it should not affect the cost of production of a bb device. you get what I mean? what happens to the cost of production of one BB6/7 or BB10 device if there was 0 amortization? The CASH cost of producing one unit of BB device should not be influenced by the accounting charges such as amortization.

Chris Umiastowski

The way intangible amortization (in COGS) is split between hardware and software/services is unknown, that's my point.  And if it was static (not changing), then it wouldn't be an issue.  We could assume the 86% margin on soft/serv that you suggested.  But it did change rather significantly so we really don't know what margin level to assume on soft/serv, in order to back it out and calculate a hardware only margin.  That's all I'm saying.  Hope that makes more sense.

riya jain

The cost of services and software is given separately for the full year result but not quarterly so the margin for that can be calculated for the full year at least and that's 86 percent..i have assumed the same margin for quarterly calculation.

Therefore the cost of sales which is given is only for hard ware and others- check the fourth quarter income statement; it's given 

Your calculation of the margin on hardware would be different had they classified the amortisation below the line which is in the operating expense.:) 

 

riya jain

By using 20% GP margin for Z10, you will get to only 25% GP margin in 1Q14 assuming they sell 7.4m bb10! impossible... and zero dollar profit. I doubt..

I think it will cross 1 dollar in EPS and US$550m in profits in 1Q14

fedakd

BlackBerry selling 7.4M BB10 is quite optimistic. Curious as to your reasoning on 7.5M BB10 units in your excel model. I do believe 3M BB7 is more realistic. Nice work, though!

riya jain

No I don't think it's optimistic. Street is backward looking. Without watsapp they told 1 m in UK and London. Basically whatever they are producing they are selling. You can change your assumption in the excel yourself
https://docs.google.com/file/d/0B-T_chqo6riIemxDU2ZHMjVBNk0/edit?usp=sha...

I think 3 million is way too low.

But if I m wrong then they just breakeven this quarter