Research In Motion Ltd. (RIMM: 47.90 0.00 0.00%) reported a mixed first quarter 2011 financial results as it continues to lose market share to iPhone fromApple Inc. (AAPL: 248.63 0.00 0.00%) and several newly launched smartphones based on the Android operating system of Google Inc. (GOOG: 436.07 0.00 0.00%), especially the flagship DROID smartphone of Motorola Inc. (MOT: 6.540.00 0.00%).Demand for BlackBerry mobile phones was lackluster in the first quarter of 2011. However, the analysts are positive on Research In Motion’s profitability for the next quarter based on the new range of exciting Blackberry products to be launched in the coming months.
First Quarter Fiscal 2011 Highlights
Research In Motion’s first quarter EPS exceeded the Zacks Consensus Estimate by 4 cents and revenues soared 24% year over year. This was due to the introduction of new models and expansion into broader customer segments and unexplored territories. Research In Motion shipped 11.2 million BlackBerry devices and added 4.9 million net new BlackBerry subscribers.
In the reported quarter, segment wise, 79% of revenues were generated from Device shipments, 16% from Services, 2% from Software and the rest 3% from Other revenue. At the end of May 29, 2010, the company had approximately 46 million BlackBerry subscribers, up 60% year over year.
Agreements of Analysts
Overall, the Zacks Consensus Estimate revision trend is quite positive. Out of 41 analysts covering the stock, in last 7 days, 4 analysts revised their estimates upwards for the second quarter of fiscal 2011 and none moved in other direction. For the next quarter, 8 of 42 analysts covering the stock raised their estimates and none revised estimates downward.
Furthermore, 8 analysts increased their estimates for fiscal 2011 and none lowered expectations. Similarly, 3 analysts revised their estimates upwards for fiscal 2012 and just 1 analyst reduced the estimate for fiscal 2012.
Currently, the Zacks Consensus EPS Estimate for the second quarter is $1.35. If this materializes, it would result in a whopping gain of 31.5% year over year. Similarly, for the third quarter of fiscal 2011, the current Zacks Consensus Estimate of $1.39 indicates a substantial growth of 26.5% year over year.
The analysts are of the opinion that strong growth from emerging markets and new product launches will offset much of the decline in US sales. Despite apprehensions regarding competitive threats from Google’s Android platform and Apple’s iPhone, the analysts believe that Research In Motion is well positioned with an integrated hardware/software model and an unmatched email service. The company is also in the process of upgrading its operating system, introducing a web browser and developing its application stores. The company also authorized a share-repurchase program of up to 31 million shares.
Magnitude of Estimate RevisionsIn accordance with overall positive estimate revision trends for Research In Motion, the Zacks Consensus Estimate for the second quarter remained flat during the past week. For the next quarter, the Zacks Consensus Estimate moved up by a penny during the last 7 days.
Accordingly, for full fiscal 2011, the Zacks Consensus Estimate moved up 7 cents in the past week and for fiscal 2012, the Zacks Consensus Estimate also moved up by 1 cent.
Earning Surprises
With respect to earnings surprises, the company’s positive trend is expected to persist in the coming quarters. Research In Motion offered a positive average earnings surprise of 2.75% in the last four quarters, implying that it beat the Zacks Consensus Estimate by that amount over the last year. The current Zacks Consensus Estimates for both the ongoing quarter and the following quarter indicate an upside potential of 0.74% and 0.72%, respectively, (essentially a proxy for future earnings surprises).
Neutral Recommendation Maintained
Robust growth of 3G smartphones throughout the world is likely to benefit Research In Motion in the near future. The strong brand value of BlackBerry is expected to keep the earnings momentum high for the company. However, we also believe that the company desperately needs a mobile phone that can outperform iPhone or Android based-phones in the market. Failing which, the company will face serious problems about remaining competitive in a market, which is rapidly changing in terms of technology, price and data plan provided by the carrier.
We maintain our Neutral recommendation for Research In Motion.
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