In a shocking turn of events that caught the market by surprise, Research In Motion Ltd (NASDAQ:BBRY) managed to turn a profit in the fourth quarter of its most recent fiscal year. After several years of turbulence that involved the company losing market share that sent the stock plummeting, investors are hoping that BlackBerry is finally on more secure financial footing. While the recently reported numbers are indeed encouraging, it’s worth taking a broader view of the company now that the dust has settled from its earnings report.
Rising from the ashes
BlackBerry shares have more than doubled since their low of $6 per share reached last fall, and now exchange hands for $14 per share, but the stock is still nowhere near the highs of more than $60 per share reached only a few years ago. Investors got a much-needed shot in the arm from the company’s recent earnings report, which revealed that Research In Motion Ltd (NASDAQ:BBRY) pumped out adjusted diluted income from operations of $0.22 per share during the fourth quarter.
BlackBerry isn’t the only smartphone maker falling on hard times. Fellow phone manufacturer Nokia Corporation (ADR) (NYSE:NOK)’s financial performance has been as poor as its share price performance. The company reported that 2012 full-year revenue declined 22% versus 2011. The company’s hopes hinge on the success of its Lumia line of devices. Nokia is due to launch more competitively priced models in the near future as a way of expanding its user base. While the stock has doubled since hitting its lows seen last summer, it has still lost almost 30% of its value since the beginning of 2012 alone.
On a positive note, Research In Motion Ltd (NASDAQ:BBRY)’s financial position remains strong. After the fourth quarter, the company held $2.9 billion in cash, cash equivalents, and marketable investments on its balance sheet. That amounts to more than $5.50 per share based on the company’s weighted average shares outstanding as of March 3. Put differently, the company’s cash, equivalents, and investments represents almost 40% of the company’s market capitalization.
Furthermore, BlackBerry has negligible long-term debt. In fact, the only items listed as long-term debt on its balance sheet are tax liabilities. Even though the stock doesn’t pay a dividend, investors are receiving a comfortable margin of safety in the form of a strong balance sheet.
Curb Your Enthusiasm
Although there are meaningful opportunities for BlackBerry, the elephant in the room continues to be Google Inc (NASDAQ:GOOG), whose Android phones have a seemingly iron-clad grip on the global smartphone market. As of the fourth quarter of 2012, Android held a 70% share of all smartphone sales, according to Gartner research. Google increased its market share by 19 percentage points from the fourth quarter of 2011, whereas Research In Motion Ltd (NASDAQ:BBRY)’s market share fell to only 4% at the end of 2012. Amazingly, Google sold more than 144 million Android phones in the fourth quarter of last year, compared to slightly more than 7 million BlackBerry smartphones sold in the same period.
While investors should cheer BlackBerry’s return to profitability and rising share price over the past few months, it’s worth noting the underlying operating performance leaves a lot to be desired. Even with the company benefiting from the release of its BlackBerry 10, fourth-quarter sales still collapsed 36% from the year-ago quarter, when there was no new smartphone released. The fact that revenue is still falling so precipitously despite the company selling one million of its new BlackBerry 10 phones is extremely concerning. Investors hoping to pick the bottom in Research In Motion Ltd (NASDAQ:BBRY)’s shares need to have more confidence that the company’s sales have hit bottom as well, and I’m just not sure we’re at that point yet.
Going forward, it will be critical for the company to increase its market share, particularly in the emerging markets where the biggest opportunity remains.