Not Too Early to Talk BBRY Earnings

 | May 30, 2013 | 1:46 PM EDT
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BlackBerry (BBRY) will next report earnings on June 28. That's the key next event for the company. Bulls and bears are in violent disagreement on what that report will show.

The short interest on the float, when you subtract the stock holdings of BlackBerry's largest shareholder Prem Watsa (with 10% ownership of the company) and Mike Lazaridis (with 5.75% of the company), is effectively 42%. That's enormous and represents huge confidence on the part of the shorts that the stock will collapse after the earnings report.

I've written before here that BlackBerry seems to be the only stock with enormous short interest that hasn't really run away this year. The stock's had a good year. It's up 22% year to date.

But that's nothing compared to Tesla (TSLA), which is up 220% this year.

The key thing is going to be what BlackBerry reports next month.

On average, analysts expect the company to earn 3 cents a share in the quarter, on revenue of $3.42 billion.

Last quarter it ended at 76 million subscribers. It sold 5 million BB7 devices and 1 million BB10 devices. It was also just shy of $1 billion in high-margin service revenues.

The bear case says the service revenues will disintegrate. But CEO Thorsten Heins telegraphed that this revenue will only decline single digits each quarter.

From the analysis I've done, the other critical factor is how many BB10 devices it sells in the quarter. It should make good very good margins on the new BB10 phones: the Z10 and Q10. The ASP for those phones should come in at $500-600 per device. Although it's still selling quite a few BB7s, my work suggests it's making negative gross margins on both these phones as well as the PlayBook tablets. So, continuing to sell these phones will help BlackBerry make its revenue bogey of $3.4 billion in the quarter, but not EPS.

What is the mix of BB7s to BB10 devices going to be in the quarters?  Obviously, the more BB10s, the better. That question alone could mean a $500 million swing in revenue in the quarter and a 20 cent swing in EPS.

The bears think that Q10 wasn't even sold in the U.S. in the quarter and the Z10 sales have died off. They are also pointing to supply constraints that BlackBerry may have had in the quarter. All these pinches could make it another quarter where BlackBerry has to rely on the several-years-old BB7 devices.

But bulls say these fears are way overblown. They point to Q10 being a hit in the UK and Canada, especially with all the old BlackBerry subscribers. There should be decent sales data from those countries in the quarter and steady sales of the Z10.

If the bulls are right, June 28 could be another big short squeeze.

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