NEW YORK ( TheStreet) -- I won't throw salt on the wounds of BlackBerry (BBRY) shareholders. I've been accused of doing this too much after each earnings release. But if you will allow me, I've got a few things I need to get off my chest after this recent disaster.
The last time I talked about BlackBerry here on TheStreet, I told investors the company was sending some mixed signals. I said this despite what was (on balance) a decent quarter, upon which shareholders jumped for joy.
I said, not so fast. After having taken some time to sort through the 8-K filing, I pointed out what I thought were potential weaknesses in the company's business -- particularly in the service revenue.
BlackBerry investors insisted on dismissing my pessimism, reminding me of how long I've been "bashing" the company. But on Friday, BlackBerry's glaring service weakness that I discussed exactly three months ago came home to roost. Following BlackBerry's better-than-expected fourth-quarter earnings results in March, I said:
Unfortunately, the upbeat numbers couldn't keep three million subscribers from churning out of the company's once-dominant service, which was another mixed signal. BlackBerry said it ended the quarter with 76 million subscribers, down from 79 million. This is the second consecutive quarter during which the company saw subscriber defections after peaking at 80 million last summer. This is because service business, which had been BlackBerry's highest margin segment, has been one of the biggest differentiators of BlackBerry from rivals Apple (AAPL) and Samsung. Although service revenue was steady at 36% of sales in the fourth quarter, it also declined 12% year over year, generating revenue of only $972 million. While this sounds like a great number, it was down from $1.1 billion in the fourth quarter of 2012. This is even though service revenue had only accounted for 27% of sales in that same quarter. What made this situation even more critical was that subscribers were canceling the service even though the prospect of BlackBerry 10 was on the tip of everyone's tongue. My point three months ago was simple: Without a strong high margin revenue-generating segment like services, the company's value was eroding. This was when the stock had already tripled in six months. I raised the argument that BlackBerry can't survive solely as a hardware vendor. It is not going to out-innovate Apple or Samsung. Investors disagreed. On Friday shares of BlackBerry closed down 27.76% to $10.46 after having been down by as much as 29%. Much of the reason for the decline has to do with continued erosion of the company's service business. I can only speculate that more subscribers churned out of the service, because the company has decided to withhold that information. I'm not sure what purpose this serves.
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