After insisting that BlackBerry (BBRY) shares would rebound throughout 2011 and 2012 as the stock plummeted, Macquarie Capital Markets cut its price target earlier this month to $11 with a Neutral rating. This marked the first time the firm has advised investors that BlackBerry shares will likely continue to fall; Macquarie remained optimistic the whole way down over the past two years, as illustrated in the chart below. While the firm does see some positive notes for BlackBerry in the coming months, it said in a recent research note that BlackBerry shares will be trading on sentiment rather than long-term fundamentals following next month’s launches, after which the stock will likely continue to slide.
“In advance of next month’s BB10 launch in two of BBRY’s largest markets, we are collaborating with our telecom colleagues Riaz Hyder in Indonesia and Best Waiyanont in Thailand to examine the company’s opportunities and risks in emerging Asia,” Macquarie analysts wrote in a recent note to investors. “We estimate that BBRY has ~15.2m subs in Indonesia and Thailand (19% of global total) and has shipped around one-third of global BB7 hardware sales in recent qtrs.”
The note continued, “Our analysis shows that although the service fee structure of BB10 will be dilutive to overall service ARPU, much of the existing service revenue will be maintained for a year or more, as initial BB10 price points may be cost-prohibitive for many Indonesian and Thai consumers. We estimate that perhaps 15-20% of the BBRY installed base could purchase $400-600 ASP devices.”
Macquarie sees the following impact for BlackBerry:
- Low-end BB7 devices remain popular due to lower ASPs of $200-300 vs. iPhone ASPs at $700-900 and Android ASPs at $300-800. Implicitly, we do not expect significant sales of BB10 at an estimated $500-600 ASP in emerging markets.
- The key reason for the strength of BB outside of BBM is 1) first mover advantage, 2) lower pricing point (US$200 for cheapest handset – Gemini); and 3) quite complimentary with Facebook and Twitter usage which were the main drivers for mobile internet adoption.
- According to Best Waiyanont, BBs have a considerably cheaper monthly cost than the data packages required for an iPhone or Android device. In Thailand, a BB package would cost only ~$10/month, with unlimited use of social media including Facebook, Twitter, BB messenger, and Email vs. a required data package costing $20 to support an iPhone or Android device. In the near-term, we think this will stay the BB sub base as the value proposition for BB devices is much more attractive to emerging market consumers than higher-end devices.
BlackBerry is likely to trade more on buzz than fundamentals in the short term, but Macquarie believes that will end following the next round of BlackBerry 10 device launches. “We continue to advise investors to ignore the launch noise and value the company on long-term cash flows, which we believe will ultimately drive the shares lower,” the firm said.