Everyone loves a goodturnaround story. This is especially true
for investors when it comes to turnaroundstocks .
These often-scornedinvestments can prove a host of doubters
wrong and deliver stunningupside as remaining bears turn back
into bulls. Yet what happens to a turnaroundstock that already
has legions ofbullish supporters? More importantly, what if a
turnaround fails to take root?
Those are the concerns surrounding
BlackBerry (Nasdaq: BBRY)
, the maker of smartphones, tablet computers and other
In January, with BlackBerry trading at nearly $18, I expressed
several concerns about the company.
A few weeks later, after investors had digested aquarterly
report ,shares quickly moved below $14. But BlackBerry is again
rising from the ashes. Instead of falling into single digits as I
had feared, shares areback up to the $16 mark.
But it's far too soon to declare mission accomplished for
BlackBerry. Serious hurdles remain, and recentsales trends are
Z10 And Q10: A Mixed Bag
To regainmarket share , BlackBerry unveiled the Z10 and Q10
smartphones in late January. The Z10 has a similar look and feel
Apple's (Nasdaq: AAPL)
iPhone and the numerous Android smartphones made by
Samsung (OTC: SNNLF)
and other competitors.
On the other hand, the G10 comes with a full physical QWERTY
keyboard -- a nod to BlackBerry devotees who have found the
layout easier to use. The physical keyboard is also a departure
from the growing trend of virtual keyboards on most
A key concern for BlackBerry had been shelf space, but a
variety of wireless carriers, in a bid to usurp the Apple/Android
hegemony, now carry BlackBerry's products. However, these
carriers have provided little marketingsupport -- either interms
of advertising or the pricing subsidies like those seen with
for the iPhone. For BlackBerry, that lack of carrier support may
now be coming home to roost.
In a May 6 report, Michael Walkley, who covers BlackBerry for
Canadianinvestment firm Canaccord Genuity, surveyed industry
contacts and noted weakening sales of the Z10 over the past
month. Demand for the G10 appears more solid, he said, adding
that supply of the phone has been limited and it's too soon to
gauge long-term demand. Walkley slashed his phone sales estimates
for the quarter by 500,000 units, to 2.8 million, which appears
to be at the low end ofWall Street forecasts.
The already softening sales trends for the all-important G10
led Walkley to conclude that BlackBerry won't be able to move
back into profitability. He forecasts the companywill lose 44
cents a share in fiscal 2014 and 75 cents a share in fiscal
Rising losses, in his view, will be the result of falling
sales, as BlackBerry's legacyrevenue streams shrink faster than
the company's smartphone sales can grow. Walkley sees shares
falling to just $9, which is roughly the value of the company's
existing base of assets. (It's worth noting that others expect
BlackBerry will indeed end up on the auction block, though
mostbuyout prices are higher than Walkley's takeout price.)
Walkley isn't alone in his concerns. About six weeks ago, upon
the release of BlackBerry's fiscal fourth-quarter results,
Citigroup'sanalysts noted that the Z10 was off to a slow start in
markets outside the United States. If global sales didn't pick up
soon, they said, "we believe BlackBerry could see additional
subscriber losses and be forced to do a price cut to its
products, both of which would pressure margins andearnings ."
Citigroup sees shares falling from a recent $16 to $10.
Other analysts aren't quite sobearish . UBS sees more limited
downside to around $13, though they "are not convinced yet BB10
will be a viable platform and remain on the sidelines with a
cautious stance." BlackBerry is likely to review first-quarter
sales results in mid-June, and UBS thinks investors will be
keeping a close eye on BlackBerry sell-through rates (i.e. sold
at phone stores and not just to the wireless service providers),
selling prices, and the average revenue per user generated each
month by existing and new customers.
Merrill Lynch, with aprice target of just $8, thinks the
average revenue per user will be quite weak. They "expect
material declines in servicerevenues , with pressure on BB7
pricing, elimination of consumer service revenues on BB10 and
decline in enterprise revenues for email-only clients."
BB7 is the company's legacy operating system. Merrill's
analysts see little promise in BB10, the company's newest
platform. The operating system itself is good enough in their
view, but the more than 100,000 apps tailored to run on them is
dwarfed by the roughly 800,000 apps offered by the Apple and
Complicating things further for BlackBerry, wireless carriers
may soon have more options besides BlackBerry and
Microsoft (Nasdaq: MSFT)
as they seek to broaden the field beyond the Apple and Android
ecosystems. A recent Wall Street Journal article suggests that
Intel (Nasdaq: INTC)
, LG Electronics and others are readying their own mobile
operating systems, which would make for a very crowded field --
and make BlackBerry's task of increasing market share even more
Looking for a bullish take? Well, Goldman Sachs has a $17
price target, noting that shares are only slightlyovervalued on
the key financial trends -- but perhaps vastlyundervalued in the
context of a companysale . Goldman's analysts think BlackBerry
would fetch a hefty $28 a share in such a scenario. They assign a
15% chance of such an event taking place, so it has only a modest
effect on their overall target price.
Risks to Consider:
As an upside risk, BlackBerry may look to partner more
aggressively with specific wireless service providers, which
could help to boost market share.
Action to Take -->
This remains a popular stock with a hard-core set of retail
investors -- but BlackBerry might not have alot of time to retain
their loyalty. If sales trends in the current quarter are as weak
as some analysts suggest, then the remaining hopeful bulls in
this stock may lose patience, and shares may quickly move toward
the $10 mark.