Big week for BlackBerry with the launch of Passport and earnings reports

Date: September 25, 2014

It has already been an active month for smartphone companies with new Samsung and Apple handsets landing. This week, the spotlight has turned to BlackBerry, who held a company event launching its new ‘Passport’ phone on Wednesday. This, their first new significant product launch since early 2013, came just two days before reporting earnings on Friday, not yet released at the time of writing.

Combined, these two events may give traders a better idea of the company’s technological and business momentum, against its competitors as well as its future prospects.

The new BlackBerry, Wednesday 24th September

BlackBerry held events in Toronto, London and Dubai on Wednesday to launch their new, square-shaped phone, which will be available in Canada, France, Germany, the UK and the US immediately, and to the rest of us later this year.

Rumours had been circulating for months that a new tablet with keyboard called the Passport was on track for a September launch. The device itself is clearly differentiated from iPhone et al, with a large, 4.5inch-squared touchscreen which, being square, makes rotating the screen unnecessary. Initial reviews suggest it helps to display more info on packages like Excel, which may appeal to professionals who don’t find it awkward or clunky, or who don’t value one-handed use. Below, it retains a physical keyboard, but an ‘innovative touch-sensitive’ keyboard, which sounds interesting.

The firm’s last significant product launch for BlackBerry – the BlackBerry 10 devices in early 2013 – was mooted as a make-or-break moment for the company. In the end, it broke.

BlackBerry’s attempt to try and catch up in the consumer market was an epic fail that led to major write-downs of billions of dollars in unsold merchandise, massive layoffs, management upheaval and the company being put up for sale. This could have led to a breakup.

The current management team was brought in the wake of this gigantic mess to right the ship and clean things up. Having done so over the last few months, the new team now hope Passport will show the marketplace where they want to take BlackBerry going forward.

Sentiment toward the company has improved in recent months, but the shares do not appear to be in nosebleed territory at the moment. In the months running up to the last product launch in early 2013, the shares soared 215% from $5.80 to $18.30. Currently near $10.80, the shares are 40% lower than just before the last launch and 6% short of their 52-week high. They are up 23.8% from the July low and up 54% from their spring low.

Earnings report

Last quarter BlackBerry lost $0.11 per share, adjusted better than the $0.25 loss the street had expected as sales beat street expectations $966M to $954M.

This time around, BlackBerry is expected to report an adjusted $0.15 per share loss on sales of $945 million.

Last quarter shares jumped 9.6% on the day of the earnings surprise and are up 30.6% since just before the last announcement. These gains indicate that it will be harder for BlackBerry to take the street by surprise this time as higher expectations have already been baked into the share price.

That being said, the shares are still 6.0% below their July peak, so while expectations aren’t as low as last time, the shares don’t appear to be priced excessively high either.

Why are these events so close together?

Scheduling a corporate event and an earnings report in the same week only makes sense if management expects to deliver good news on both fronts so that they can reinforce each other and show customers and investors that BlackBerry has turned the corner and is on the move again.

A disappointment on either side would detract from good news on the other, so if there was going to be negative news, it would make more sense to put some space between the two events. The jury is out on the product launch.

In the wake of BlackBerry’s many disappointments over the last few years, management must show things getting back on track, not only internally but relative to the competition as well. Apple and Samsung have both announced new smartphones already this month, while Apple’s summer deal with IBM suggests the potential for increased competition for BlackBerry’s core corporate customer base. Both Apple and Blackberry have announced new initiatives in mobile payments lately.

BlackBerry received a boost from the software side from Facebook’s purchase of WhatsApp. Now it needs to come through on the hardware and financial sides to keep its momentum going.

Chart Analysis: BlackBerry shares before the launch

Since the December washout when the auction of BlackBerry failed and the new management team took over, shares have been steadily recovering. Shares have posted their biggest gains in two surges, a relief rally last winter and a jump in June and July when the WhatsApp takeover sparked renewed interest in companies with wireless messaging software. Even with these gains, BlackBerry has still underperformed Apple so expectations still appear to be moderate relative to its competitors.

The July correction ended with support coming in at a higher low near $9.00 and for the last six weeks, shares have been steadily climbing, currently trading just short of $11.00 and their 52-week high closer to $11.50. This trading represents a normal consolidation within a broader uptrend.

On a breakout, a measured move from the current channel suggests $14.00 could be tested over time with initial resistance possible at Fibonacci levels near $11.85 or $13.35. Initial downside support should there be a negative surprise may appear in the $10.00 to $10.35 area between a round number and a Fibonacci level.

Desmond Chua
Market Analyst, CMC Markets

This article is contributed by CMC Markets