RIM Earnings Preview: “Terrible With a Scoop of Worse”
With its shares trading at a near-nine-year low amid increasing skepticism over its prospects for a turnaround, expectations for RIM’s first fiscal quarter are decidedly low. As Jefferies analyst Peter Misek told AllThingsD, “It’s going to be terrible with a scoop of worse for August.”
Which is probably a fair bet. The company’s shares have tanked 11 percent so far this month, and its market capitalization has slipped below $5 billion. Five years ago, it was about 16 times that.
Consensus among Wall Street analysts is for RIM to report a net loss of three cents per share on revenue of $3.1 billion for the quarter, a precipitous decline from the earnings of $1.33 per share on revenue of $4.9 billion the company posted for the same period last year. But that’s the mean estimate. Some analysts are forecasting far greater losses, with the low being -36 cents. (To be fair, the top high estimate is 51 cents, but that’s clearly from an equally high analyst.)
And forecasts for RIM’s second quarter are equally gruesome. At a loss of four cents, the mean is a penny lower, dragged down by concerns about how Samsung’s Galaxy S III and Apple’s next-generation iPhone will further kick the legs out from under RIM.
But let’s not get too far ahead of ourselves here.
The disaster of the day is RIM’s first-quarter earnings report, not its second. And beyond just some ugly numbers, there could be additional bad news as well. A decline in BlackBerry shipments. A leveling out of new subscriber additions — or a decline there, too. And then there’s the issue of the timing around the launch of RIM’s already-delayed BlackBerry 10 operating system. If RIM waits too long to debut the OS and its related hardware, it could miss this year’s critical back-to-school season, which would be disastrous for what is essentially a last-ditch effort from new CEO Thorsten Heins to save the company.
Wedge analyst Brian Blair recently took that scenario to its logical conclusion and, as you’d expect, it ends badly.
What we know from watching Nokia and Palm over the years is that fundamentals that are bad can always get worse, particularly if there is no meaningful catalyst for stabilization on the horizon, or if that catalyst isn’t able to stem the fundamental bleeding. RIM finds itself in such a situation with an aging product line and nothing that appears able to change its fate in the pipeline. We see a steep drop off in revenues and units near term, punctuated by a drop in subscriber adds, and an OS refresh that is largely ignored by carriers and consumers alike, driving RIM into a forced sale in 2013.
A harsh assessment. But then it’s gotten difficult to pick out any bright spots in the train wreck that RIM has become. With the company in such decline, there’s a chance that even BlackBerry 10 won’t be enough to turn it around.
Said Blair, “This is going to be the third inning of RIM’s death spiral.”