Recently, Research In Motion Ltd (NASDAQ:BBRY) experienced a significant drop of nearly 27.5% to only $10.50 per share within one trading day. The free fall of the stock price might be due to the company’s sluggish first quarter earnings results. Dated back to the company’s heyday in the middle of 2007, Blackberry was trading at more than $230 per share with a the total market cap of more than $120 billion. At the time of writing, Blackberry was sold on the market at only $5.5 billion. Personally, I think it was too cheap.
Blackberry’s sluggish shipments
In the first quarter of 2014, Blackberry’s revenue came in at more than $3 billion, around 7% higher than its revenue in the first quarter of last year. The company’s gross margin experienced decent improvement, from 28% last year to 33.9% this year. The company reported that it had shipped around 6.8 million smartphones in the recent quarter, including 2.7 million new Blackberry 10 phones. The shipment volume came short of analysts’ expectations of 7.5 million shipments, including 3.6 million Blackberry 10 phones.
In the smartphone world, Samsung is still the global leader. According to IDC, Samsung shipped 70.7 million units in the first quarter 2013, a significant growth of 60.7% compared to 44 million unit shipments in the first quarter of last year. It holds the number one position with a 32.7% market share in the smartphone industry. Apple Inc. (NASDAQ:AAPL) ranked second with a much lower number of shipments due to slower growth in the recent quarter. With 37.4 million unit shipments in the first quarter, Apple’s market share stayed at 17.3%.
In the first quarter of 2014, the company generated a loss of $84 million or -$0.16 per share. Blackberry also mentioned that the Venezuela foreign currency restrictions had around $0.10 per share impact on the reported GAAP earnings per share. The company’s operating cash flow was positive at $630 million. What I like about Blackberry is its conservative capital structure; as of June 2013, it had nearly $9.4 billion in equity, more than $2.8 billion in cash and short-term investments, and no debt. Its intangible assets came in at more than $3.5 billion.
Prem Watsa is bullish about Blackberry
Prem Watsa, the “Canadian Warren Buffett,” is the 10% owner of the company. He is quite bullish about the company’s ongoing turnaround under the leadership of CEO Thorsten Heins. Although there is a lot of competition in the smartphone industry including Apple Inc. (NASDAQ:AAPL), Samsung and Google Inc (NASDAQ:GOOG), the he believed that smartphone market would be a fast growing market. Watsa pointed out that Research In Motion Ltd (NASDAQ:BBRY) still has around 75 million users in the world and its product catch is security. He thinks that Blackberry, with its unique security level, still has its place in the market. Of course, the turnaround would take a lot of time and there would be more ups and downs along the way. In the long-term, Watsa believes that Blackberry’s fair value is around $40 per share.
Samsung with its preferred stocks
At $10.50 per share, Research In Motion Ltd (NASDAQ:BBRY) is valued at only 3.6 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). Apple Inc. (NASDAQ:AAPL) has a much higher valuation, trading at $396.50 per share with a total market cap of $372.2 billion. The market values Apple at around 6.1 times its trailing EBITDA.
Interestingly, what might make investors excited is Samsung with its low valuation. The global smartphone leader has the similar valuation to that of Research In Motion Ltd (NASDAQ:BBRY). Samsung is trading at $1,140 per share, with the total market cap of $149.20 billion. It is valued at only 3.6 times its trailing EBITDA.