Investors are always looking at the pipeline of companies in order to determine if their investment will bring capital appreciation. The cellular phone industry is a tough sector where technology is evolving at a rapid pace. Since Apple Inc. (NASDAQ:AAPL) released the iPhone, Research In Motion Ltd (NASDAQ:BBRY) BlackBerry and Nokia Corporation (ADR) (NYSE:NOK) have lost significant market share. In an effort to regain some of the lost territory, BlackBerry developed its own operating system called BlackBerry 10.
Further, the company developed two devices called the Z10 and the Q10. However, according to the most recent quarterly earnings report, the BB Z10 was not received as it was expected. The question to discuss is: Is Research In Motion Ltd (NASDAQ:BBRY) BlackBerry a good buy at these levels after dropping close to 30% in a week?
I fear the answer is no
Strong reasons suggest that investors avoid the stock until further notice. The number of units shipped came surprisingly short this quarter, even though its new model BlackBerry Z10 was expected to be a blockbuster.
In a previous article, I wrote about the disappointing sales of the BB Z10. The company invested many resources for the development of the new BlackBerry 10 operating system. Investors were excited, and it was the last hope for them. Sadly, only 1 million BB Z10s were sold in the first four weeks after release in the previous quarter.
The company sold 2.7 million units in 12 weeks, or 225,000 devices per week, compared to the 250,000/week in the previous quarter. I fear the demand for the devices is dimming. The number was well below several analysts’ estimations. Morgan Stanley’s Gelblum was expecting 3.5 million BB10 devices sold in the first quarter. Citigroup’s Jim Suva, who has a sell rating on the company and a $10 price target, expected shipments of 3.25 million.
Here is another concern: The company failed to disclose the number of BB Z10 units shipped in the original quarterly earnings report. I do not like when companies do not fully disclose information to investors. Think about how an investor would feel about Apple Inc. (NASDAQ:AAPL) not disclosing how many iPhones were sold in the first or second quarter.
Another point that is of interest is the decline in subscribers, since 28% of the revenue is accounted for by the software and services areas. The number of subscribers fell from 76 million to 72 million. In the quarter preceding it (fourth quarter of 2013), subscribers fell from 79 million to 76 million. Overall, there is a steady decline in subscribers, which is not good for the company.
Finally, although the company’s revenue increased 15% on a year-over-year basis, the company swung to a net loss of $84 million, or $0.16. This was a surprise considering that the company had been profitable in the previous two quarters.
Why are subscribers going to other cellular phone makers?
More often than not, the simplest answer is the best one. The company had stopped innovating its products, and they were not bringing substantially new features. It was different in the mid-2000s when Research In Motion Ltd (NASDAQ:BBRY) BlackBerry introduced the QWERTY-type keyboard. It was an important feature because it reduced the text-message typing times. However, most of the new cellular phones have a QWERTY keyboard implemented in the system.