- RIMM reported better than expected Q1 results driving the shares up 20% but even a dead cat will bounce if dropped from a high enough altitude.
- Q1 Revenues and EPS were $2.87bn / LOSS $0.45 compared to consensus at $2.47bn / LOSS $0.68. (includes restructuring).
- ASPs were also strong at $229 compared to consensus at $194 driven by the push to upgrade subscribers to BB7 and a small shift in mix back towards developed markets.
- This was mostly on account of the better volumes of devices where 7.4m devices were sold compared to expectations of 6.7m.
- Playbook was disappointing again shipping 130K units compared to forecasts of 217K units but frankly the volumes are so low that no one really cares.
- I expect that RIMM will sooner or later realise the futility of its tablet offering and give it up thereby making some much needed cost savings.
- Critically cash burn was negligible with the cash balance declining by just $60m. Amortisation and goodwill write downs wiped out the losses allowing cash to remain stable which I suspect was also well received.
- RIMM also managed to grow the subscriber base by 2m to 80m bit the mix and quality of these subscribers is falling fast despite this quarter’s blip.
- Out go the high spending corporate executives spending $100+ per month and in come the teenage texters in Indonesia spending more like $5 a month.
- Guidance was very cautious with commentary surrounding the current strategy to maintain the user base through very aggressive pricing on both the devices and the subscription fees charged to operators.
- The crown jewel is BBM. The vast majority of the user base is now using BBM as it’s a great way to send texts for fixed charge.
- The network effect is also very strong and the minute that BBM usage starts to slide or to fall then the game is over.
- BB10 is slowly emerging but as the value of RIMM remains in BBM, I am not sure why the users are going to care that much.
- What is more these users are increasingly super low end and less likely to be able to pay for an upgrade to their Blackberry device especially if it doesn’t add that much extra value on BBM compared to their existing device.
- Estimates will rise following these numbers but I can’t put my hand on my heart and say that this is the bottom, there could be worse ahead.
- The share is horribly volatile, albeit very cheap, but I still don’t want to play one way or the other as I can’t really see the direction yet.
- Short-term bounces around news flow are likely to remain the order of the day.
Blog Comments
Francisco Kattan
October 4, 2012 at 9:01 pm
Could not agree more with your comment: BBM is the crown jewel. RIMM has failed to realize that it is no longer in the platform business. It is a messaging company. Between BBM and it’s enterprise messaging businesses, RIM had a shot at making it. It is too late now, but had RIMM realized this before, it could have repositioned and grow a profitable messaging businesses, including taking BBM to competing platforms to expand its TAM rather than limit it to its own shrinking share of devices. The question is whether RIM could have made up the margin it gets from devices by selling more subscriptions on other platforms and I think so. I wrote about this a while back where I included a back-of-the-envelope margin analysis here: http://franciscokattan.com/2011/03/20/is-rim-in-the-smartphone-business-or-the-messaging-business-time-to-decide/
windsorr
October 5, 2012 at 2:01 pm
I agree with margin. In fact margin would probably have improved if BBM had beem made available on other platforms as one would probably have seen a big increase in users at virtually no extra cost. BUT revenues probably would have fallen off a cliff. This is because there would be no reason to buy the devices anymore. Each device is worth $220 to the company in terms of revenues. I would have thought that an Indonesian user might pay $1 per month for access to BBM ($2r a year). That means for each device sale lost RIMM would have to add 18 usres just to keep revenues flat. This is the problem that faces all hardware makers. They are hooked on hardware heroin and cold turkey is just to painful. I think RIMM had no choice but to keep BBM exclusive to its phones, its the only reason why they still sell handsets today.
shopping
October 7, 2012 at 4:01 pm
Wonderful items from you, man. I have have in mind your stuff prior to and you are just too wonderful. I actually like what you’ve received here, certainly like what you’re saying and the way in which you assert it. You are making it entertaining and you still take care of to keep it wise. I can’t wait to read much more from you. That is actually a wonderful site.