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TheStreet Open House

BBRY and Investors See Red on Second-Quarter Results

NEW YORK (TheStreet) - Mere days after the unveiling of the Z30 smartphone failed to elicit market excitement, BlackBerry  (BBRY) released its fiscal second-quarter results a week earlier than scheduled. The numbers further demonstrate the challenges the beleaguered tech company has faced in recent months.

For the quarter ended August 30, BlackBerry expects revenue of $1.6 billion, well below the expected $3.06 billion. The company will recognize a $950 to $995 million operating loss, attributing much of this to fierce competition in the smartphone market. BlackBerry devices have suffered at the hands of more dominant smartphone manufacturers such as Apple (AAPL), Google  (GOOG) and Microsoft  (MSFT) over the past few years.

Though rumors of downsizing have been circulating since early this week, BlackBerry confirmed it will cut 40% of its workforce by year-end. The layoffs enforced across all departments will affect around 4,500 employees.

In the company's press release, President and CEO Thorsten Heins said, "We are implementing the difficult, but necessary, operational changes announced today to address our position in a maturing and more competitive industry."

Going forward, he says the company will focus on the enterprise and professional user segments. "This puts us squarely on target with the customers that helped build BlackBerry into the leading brand today," he said.

BlackBerry has enlisted PricewaterhouseCoopers to assist in the evaluation of potential buyers to lift the company out of the doldrums, according to Bloomberg. In August, BlackBerry confirmed it was formulating strategies to resuscitate the company, including its possible sale to an external party.

After a halt in trading during the announcement, BlackBerry shares plunged 20% once trading resumed at 3:40 p.m. EST. At market close, shares were trading down 17.06% to $8.73 a share. During the day, 64.6 million shares changed hands compared to the average daily volume of 28.88 million. Overall, BlackBerry is lagging the S&P 500 which is down 0.72%.

TheStreet Ratings team rates BlackBerry as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate BlackBerry a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Communications Equipment industry and the overall market, BlackBerry's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $630 million or 11.39% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • BlackBerry reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, BlackBerry swung to a loss, reporting -$1.20 versus $2.24 in the prior year.
  • 41.06% is the gross profit margin for BlackBerry which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -2.73% is in-line with the industry average.
  • This stock has increased by 36.44% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in BlackBerry do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
Written by Keris Alison Lahiff.

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