What to Watch for in BlackBerry's Earnings Report

At this time last year, virtually everybody had left BlackBerry for dead. Repeated delays in launching phones running the new BB10 operating system left BlackBerry far behind Apple's iOS, as well as Samsung and other competitors using Google's Android operating system. Even Nokia's new Lumia smartphones beat BB10 to market and exceeded sales expectations last fall.

However, BlackBerry got back into the game this year, officially unveiling the Z10 and Q10 smartphones on Jan. 30. Anticipation of that launch event drove BlackBerry's stock up from its September low of $6.22 to more than $18.

BBRY Chart
BBRY Chart

BlackBerry Price Chart by YCharts.

Since then, the stock has receded somewhat amid renewed debate over the platform's likely success and competing views on initial sales trends. Investors will get some early insight into BlackBerry's trajectory when the company reports earnings in two weeks. Here's what you should look for.

Z10 Sales
BlackBerry's all-touch Z10 smartphone went on sale in the U.K. the day after the launch event, and has since gone on sale in Canada and a number of smaller BlackBerry markets. (U.S. sales are expected to begin later this month.) There is a great deal of uncertainty about early Z10 sales trends. Analysts have been throwing out very low sales estimates -- typically under 1 million units -- for Q4, which covers the first month or so of shipments. Anything greater than 1 million units sold last quarter would be a very strong result, while a total less than 500,000 would be somewhat troubling.

However, early Z10 sales figures will not tell the whole BlackBerry story. The upcoming Q10 smartphone is likely to appeal more to BlackBerry's traditional base, and could therefore be more popular initially. By contrast, the Z10 is attempting to woo consumers away from the iPhone and various Android devices. Given the strength of those two franchises, it would be naive to expect the Z10 to gain traction immediately.

Sales mix
While BlackBerry is not going to challenge Apple or Samsung for smartphone dominance any time soon, CEO Thorsten Heins has stated on several occasions that many Z10 buyers are coming from other platforms. Such "conquests" made up as much as 45% of early Z10 sales. It will be important to listen for any comments on the earnings call about whether this high rate of conquest sales has continued. The iPhone and Android user bases dwarf the current BlackBerry user base, so convincing some people to switch is critical for the platform's success.

Balance sheet
Of course, BlackBerry's financial results are also important. However, one-time launch costs probably weighed heavily on last quarter's profitability. The most important financial metric to watch, therefore, is BlackBerry's cash and investments balance. Surprisingly, BlackBerry was able to add nearly $1 billion of cash and investments to its balance sheet in the first three quarters of FY13, despite losing money, thanks to solid working capital management and restrained capital expenditures. However, BlackBerry now needs to use cash to build up inventory of BB10 devices and to market them. It will be important for the company to reassure investors that it has enough cash to do so; a cash and investments balance greater than $2 billion at the end of the quarter should be sufficient for that purpose.

Foolish conclusion
BlackBerry investors should thus be looking for three things when BlackBerry reports earnings this month. First, did the company manage to hit 1 million Z10 sales (or close to that level)? Second, are iPhone and Android users continuing to switch to BB10? Third, does BlackBerry still have a cash cushion of at least $2 billion? If the answer to all three questions is "yes," BlackBerry investors could see nice gains this year.

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The article What to Watch for in BlackBerry's Earnings Report originally appeared on Fool.com.

Fool contributor Adam Levine-Weinberg owns shares of Apple and BlackBerry, and has the following options: Long Jan 2014 $13 calls on BlackBerry. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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