BlackBerry – Ballad of the fat lady.

It is far from over but the fat lady is warming up.

• They say that “aint over ‘til the fat lady sings” but BlackBerry’s Q1 results are a very bad sign of its long-term outlook.
• BlackBerry shipped 6.8m units of which 2.7m where BB10.
• This compares badly to consensus at 7.6m and 3m-5m respectively but was slightly ahead of my cautious estimates of 6.4m and 2.1m.
• To compound the issue, BlackBerry refused to give any indication of the sell through of BB10 even though it did admit to building inventory of BB10 units.
• Hence my forecast of 2.1m BB10 units sell-through is probably about right.
• Q2 guidance of an operating loss against consensus of operating profit of $32m was also badly received.
• The two big problems of BB10 are coming home to roost
  • First, it is too expensive.
  • Second, it has no ecosystem with which to delight and engage users.
• Neither of these problems are easily fixed and the next three months are likely to see BlackBerry miss shipments numbers again.
• This is because BBM will become available on non-BlackBerry devices removing the need to own a device in order to get access to this popular and sticky service.
• Hence, the next quarter’s results are likely to see positive commentary around the number of users of BBM but very bad news when it comes to revenues in the door.
• This will probably cause the shares to collapse again and so there is no reason whatsoever to even consider picking the stock up yet.
• Furthermore, BlackBerry will find it very hard to monetise non-BlackBerry users of BBM and if it tries to charge upfront users will probably not materialise.
• It is not over yet. BlackBerry has a good platform, 74m subscribers and a large number of operators willing to help, but this company looks much more like Palm than Nokia.
• Nokia suffers from neither of these two problems and I am hopeful that if the message around Windows 8 can be effectively communicated then it can become the third mobile ecosystem.
• What is most encouraging is that Nokia has digested the problems around Windows Phone and is doing everything it can to fix them even if Microsoft is not being much help.
• Hence, Nokia’s shares are a far better bet for anyone looking for a recovery story or to invest in the third ecosystem.
• BlackBerry, may survive as the fourth or fifth ecosystem but there is at least one more very nasty surprise waiting for investors before a bottom will be found.
• The fat lady is on standby in Waterloo.