The Market Ticker
Commentary on The Capital Markets- Category [Earnings]

Financial engineering is not a positive-sum or even zero-sum game -- it is a negative sum game.  It must be due to the simple fact that nobody works for free, as I've repeatedly pointed out.

IBM got monkey-hammered this morning on their earnings release; they've been one of the financial engineering "kings" over the last few years, and missed -- badly.  They no longer believe their EPS goals are achievable, citing weak sales.

Uh, yeah.  Weak sales eh?  How's that good?

The fact is that it's not just spending and revenue.  It's also the leverage amplification that IBM (and others) have used to "goose" results over the last few years, leveraging extremely low borrowing costs and abusing stock buybacks.

The chickens are beginning to come home to roost on these practices.  Do not be deceived into believing this is a "one-off" or "one company story."  It most-certainly is not.

The entire market has been lofted by this nonsense; now, into the maw of what should be a cyclical exhaustion point we're going to get the backside of these practices, and IMHO it's going to sting, with little that can be done to dampen it.

The financial forecast appears to me to be cloudy with a chance of random portfolio butt****ing.

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Vindication comes to the patient...

HBO's streaming announcement didn't help, and neither did weak guidance and decelerating growth.

When you're priced at 134x earnings absolutely nothing can go wrong or you get destroyed.

In this case if you were long the stock you just saw 26% of your money evaporate within 30 minutes.

smiley

PS: Just wait until the other dominoes come down on this one...... Raise your glass to stupidity America, bidding up stocks to 134x earnings is, well, stupid -- and when you get reamed doing it just remember who's fault it is that you got so greedy as to not sell out before this point -- YOURS.

Oh, by the way, what's Amazon's P/E?

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After a sharp gyration in the pre-market when the release hit the tape the shares on a tear today, reversing the sell-off from yesterday.  Given the actual release it's not hard to see why.

Q2 Highlights:

• Cash and investments balance of $3.1 billion at the end of the fiscal quarter, up $11 million from the prior quarter

• Normalized cash use of $36 million in the quarter, compared to $255 million in the prior quarter

• Non-GAAP gross margin of 47.5%, driven by positive non-GAAP hardware gross margin 

• Breakeven non-GAAP operating margin

• The EZ Pass Program has resulted in a total of 3.4 million licenses issued for BES10, a nearly three-fold increase from last quarter, with 25% of total licenses traded in from competitors’ Mobile Device Management platforms

• 91 million monthly active BBM users, up from 85 million in the prior quarter

• Created the BlackBerry Technology Solutions unit, encompassing QNX (embedded software), Certicom (cryptography), Paratek (antenna tuning), the patent portfolio and the Internet of Things strategy

• Announced an agreement to acquire Secusmart, a leader in high-security voice and text encryption, and recently announced the acquisition of Movirtu, a provider of virtual SIM solutions, after the end of the quarter

The firm shipped and sold through a bit over 2 million devices.  However, the Passport sold out over 200,000 units in both their online store and Amazon almost immediately on launch day Wednesday -- against their last quarter selling 10% of that volume direct to customers in a couple of hours with no carrier "skim-off" or subsidy is pretty damned impressive.

I didn't get one, by the way; I was too slow and I'm not considered a "privileged" journalist (and thus wasn't given one to review "cutting the front of the line.")  Yes, I'm buying one when I can get my grubby paws on a unit.

But that's just part of the good news.  The BES10 licenses are a big deal, as that was one of the question marks that many have had: Can BlackBerry penetrate the mobile device management business, and can they steal customers from competitors in the process?  The answer to both appears to be yes.

Questions about financial stability appear to be behind the company.  Cash balance went up, and not through one-off events like selling debt either.  Operationally the firm is extremely close to cash-flow breakeven on a non-GAAP basis and appears to be well-positioned to meet the metric Chen had put forward of doing so on a GAAP basis within the next couple of quarters.  Finally, BBM usage continues to grow.

As I noted the other day I believe one of the 900lb Gorillas in the room is in fact Blend, as it is something nobody else has.  While BES10 and 12 are very important on a forward basis Blend may well be a corporate driver of handset sales, which nobody has modeled as a material part of the firm's operating profit going forward.

I believe that's a mistake -- and one that, if I'm right, won't be recognized for another couple of quarters as it will be approximately then that 10.3.1 is out for everyone and the Classic has launched.

In the meantime the revenue coming from BES10 and the upcoming launch of 12 in another couple of months is coming online and that should be expected to accelerate.  That a quarter of the licenses coming in are from robbing competitor customers is a strong positive indicator of market acceptance.

These guys aren't done folks -- not by a long shot.

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