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Research In Motion Ltd (BBRY): Earnings Were Dim, But the Story’s Not Over

The past 12 months were amazing for Research In Motion Ltd (NASDAQ:BBRY). Until about a week ago, the stock price was up 62% thanks to the street’s high expectations on BlackBerry 10 (BB7) services, BlackBerry’s latest attempt to recover market share and become a leading player in the smartphone space. But high expectations need real revenue to survive. And eventually the time for investors to demand some real sales to keep their long positions had to come, just like all things in life. The D-Day: Friday, June 28, 2013. After BlackBerry reported disappointing first-quarter results in the morning  (revenue of $3.1 billion, quite below estimates; and a pessimistic outlook and loss projection for the second quarter), it all went wrong: down 27.76% in a single day.

Research In Motion Ltd (NASDAQ:BBRY) bulls were particularly hurt by the disappointing sales of BB10 devices: 2.7 million units. This number includes sales of BlackBerry Z10, which is the flagship of all the BB10 series and is considered by many as the last hope for BlackBerry to become an important player in the fiercely competitive smartphone market. But 2.7 million units sold was just too low. Goldman Sachs was projecting 3.5 million units. Wells Fargo, too. Societe Generale went as far as projecting 5 million units and Jefferies, around 4 million units.

BlackBerry Ltd (NASDAQ:BBRY)

Notice, however, that a -27% hit on stock price has caused Research In Motion Ltd (NASDAQ:BBRY)’s market capitalization to go as low as $5.5 billion dollars. You have to agree with me that, although BlackBerry is definitely having serious issues competing against major giants in the smartphone market, $5.5 billion dollars looks, at first glance, like a very cheap valuation.

Is it time to be a bull or a bear?

First, we need to know how serious the situation is. The company confirmed that it is having problems with profitability and competitors. EPS came negative. Adjusted loss from continuing operations for the first quarter was $67 million ($0.13 per share). The outlook for the next quarter is uncertain and pessimistic: “The smartphone market remains highly competitive, making it difficult to estimate units, revenue and levels of profitability.” And, even worse, the company missed on revenue estimates by a big margin, which means that the Z10 did not help much, at least until now.

Before the earnings call, 182.6 million shares were shorted, but many refused to become bears simply because most sell-side analysts kept their buy or overweight ratings. To make things more confusing, StatCounter statistics (which measures Internet traffic, including traffic coming from BlackBerry devices) gave a hint that Research In Motion Ltd (NASDAQ:BBRY) could beat the street consensus. It showed an increase in Internet traffic coming from BlackBerry devices:

However, even though BlackBerry devices seem to be increasing in number (as measured by percentage traffic coming from mobile devices), now we can be sure that it will take more time for BlackBerry to sell enough devices to break the buck and beat the street consensus. Luckily for Research In Motion Ltd (NASDAQ:BBRY), even though sales are not enough now to make a real difference in the stock price, the graphic shows a healthy growth trend that could make a real difference in a couple of quarters.

The trend is exactly the opposite for traffic coming from Apple Inc. (NASDAQ:AAPL)‘s: Fewer Apple devices are being used to access the Internet, which is consistent with the poor performance Apple showed in its latest earnings call. Now, Apple’s traffic seems to be decreasing faster than Research In Motion Ltd (NASDAQ:BBRY)’s traffic is increasing, but there is an obvious explanation for this. Samsung‘s traffic is also rising – among other competitors –  which confirms the fact that the Korean hardware maker remains well-positioned in Asian emerging markets, where the smartphone penetration ratio is increasing like there is no tomorrow.

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