Why Are BlackBerry Shares Surging?

The company may finally be on the right track.

| More on:
The Motley Fool

On Friday morning, BlackBerry (TSX: BB)(Nasdaq: BBRY) CEO John Chen got a chance to give an update on his turnaround plan as the company reported earnings for the fourth quarter of 2013.

By most standards, it was a poor quarter. At $976 million, revenue was down 64% compared to the fourth quarter of 2012, and missed analyst estimates of $1.1 billion. The company also reported a loss of $423 million for the quarter.

For the full year, BlackBerry’s revenue decreased nearly 40% from 2012 levels, and the company lost $5.87 billion.

But the news was not nearly as bad as expected. Excluding one-time items, the loss from continuing operations was only $42 million, or eight cents per share. Analysts were expecting a loss of 55 cents per share. Mr. Chen also said that cost-cutting initiatives were ahead of schedule, and that the company is targeting break-even by the end of 2015. Until then, BlackBerry has $2.7 billion in cash and investments. A recent announcement that it would sell 3 million square feet of land will give that cash balance a boost.

In early trading on Friday morning, the shares are up nearly 6%.

Reduced expectations

Much like Lululemon yesterday, BlackBerry’s latest earnings update was a major beneficiary of lowered expectations. A good example surrounds the company’s inventory write-downs. For example, in the second quarter of last year, BlackBerry recorded an impairment charge of $934 million, primarily due to the Z10 phone. Then came an impairment of $1.6 billion in the third quarter, again from writing down BlackBerry 10 phone inventory.

But when John Chen announced a partnership with Foxconn, he said it would put an end to these severe write-downs. And while it is too early to judge that partnership on its merits, BlackBerry recorded an inventory recovery of $149 million in the fourth quarter (in other words, reversing previous write-downs).

Foolish bottom ine

The earnings results have sustained BlackBerry’s very strong momentum in the new year; the company’s shares have risen by 33% so far in 2014. To borrow Mr. Chen’s line, BlackBerry seems to be in “execution mode”, and investors are clearly more hopeful than they have been in months.

But the quarter also served as a reminder of how long the road will be to recovery. Investors who aren’t prepared to take some significant risk should avoid this stock like the plague.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »