Earning Scorecard: Research In Motion

Research In Motion Ltd. (RIMM) reported its first quarter 2012 financial results, where earnings per share (EPS) exceeded the Zacks Consensus Estimate but revenues missed the same.

Research In Motion reported weak financial outlook for the second quarter of fiscal 2012. Revenue is expected to range between $4.2 billion–$4.8 billion, while quarterly EPS is expected between 75 cents and $1.05. Gross margin is expected to be approximately 39%. We believe that lack of upgraded operating system and dismal performance of the company’s much-hyped Playbook tablets during the quarter led to such a defensive outlook.

First Quarter Highlights

First quarter 2012 total revenue was $4,908 million, up 15.9% year over year but well below the Zacks Consensus Estimate of $5,400 million. Net income was $695 million or $1.33 per share compared with a net income of $769 million or $1.39 per share in the prior-year quarter. Quarterly EPS of $1.33 was slightly above the Zacks Consensus Estimate of $1.32.

Gross margin in the reported quarter was 43.9% compared with 45.4% in the year-ago quarter and 44.2% in the previous quarter. Segment wise, Device shipment contributed 78% to the total revenue, Services contributed 20%, and Software and Other contributed the remaining 2% in the first quarter of fiscal 2012. In the reported quarter, Research In Motion shipped around 13.2 million BlackBerry smartphones and around 500,000 BlackBerry Playbook tablets.

Agreements of Analysts

Of the 44 analysts covering the stock in the last 7 days, none revised their estimates for the second quarter of 2012 as well as for the third quarter of 2012. Similarly, for fiscal 2012, none out of the 47 analysts revised their estimates. Likewise, for fiscal 2013, out of the 42 analysts, none changed their estimates.

Currently, the Zacks Consensus EPS Estimate for the second quarter of 2012 is pegged at 88 cents. The projected annual growth is (39.59%). Similarly, for the second quarter, the current Zacks Consensus EPS Estimate of $1.42 indicates a loss of 18.5% year over year.

Magnitude of Estimate Revisions

In synergy with the analysts estimate, during the last 7 days, the Zacks Consensus Estimate remained at 88 cents, for the second quarter 2012 and at $1.42 for the next quarter. Likewise, for fiscal 2012, the Zacks Consensus Estimate remained at $5.20 and $5.49 in fiscal 2013.

Earning Surprises

Over the last four quarters, the company has done extremely well by consistently beating the Zacks Consensus Estimates with a relatively better margin. Although, in the upcoming two quarters, we believe there will be significant pressure associated with the marketing of their new product Playbook. Hence, the second quarter and the third quarter contain 0.00% earning potentials (essentially a proxy for future earning surprises). Similarly, fiscal 2012 also contain 0.00% earning potentials, while fiscal 2013 reflect 0.18% downside potentials.

Our Recommendation

Continuous loss of market share coupled with tepid response from their much-hyped PlayBook tablets and delayed product launch will put pressure on market shares.

Moreover, stiff competition from Google Inc’s (GOOG) Android-based smartphonesand Apple Inc.’s (AAPL) iPhone and iPad series will further impact market share. Even the popular BlackBerry messenger of Research In Motion, which was the only unique product in their portfolio, has also come under threat from Apple’s imessenger, which is believed to be technologically advanced compared to BlackBerry messenger. As a result of all these headwinds, the company has further lowered their second quarter outlook, which we believe will further lose investors confidence on its stock.

We, thus, maintain our long-term Underperform recommendation for Research In Motion Ltd. Currently, Research In Motion Ltd has a Zacks#5 Rank, implying a short-term Strong Sell rating on the stock.

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