TORONTO - Quarterly results at Research In Motion managed to beat the expectations of the market, but investors showed Thursday that they're still not convinced the BlackBerry maker's business model is going to be a smashing success.
After the third-quarter report was issued, RIM's shares surged more than eight per cent in after hours trading. But the stock began a dramatic retracement once executives laid out details of some service fees associated with the make-or-break launch next year of the BlackBerry 10 smartphones and operating system.
RIM shares (Nasdaq:RIMM) fell almost 10 per cent, or $1.37, to $12.75 as of 7:15 p.m. ET in New York.
The sticking point for investors appeared to be comments from chief executive Thorsten Heins that suggested the lucrative service fees charged to BlackBerry subscribers to use its secure network won't necessarily be a priority for the company anymore.
"We will be transforming our service revenue platform to reflect different usage levels of our network infrastructure, and different value-added software, security and service packages," he said.
RIM (TSX:RIM) plans to launch an a la carte menu of services where both enterprise customers and casual smartphone users can pick their packages, ranging from a "platinum package" that covers all of the security features that BlackBerrys offer today, to more stripped back packages that would focus less on security and more basic email services.
Heins said some smaller business, for example, are just looking for the basics rather than the encrypted technology that RIM has built its name on, and multinational corporations cherish.
"Subscribers that require enhanced services ... are expected to continue to generate monthly service revenue," he said on the conference call.
"Other subscribers who do not utilize such services are expected to generate less or no service revenue."
Those comments about the future of RIM overshadowed an otherwise surprisingly stable third-quarter earnings report, which showed that the company was riding out the countdown to the BlackBerry 10 launch relatively well, especially considering it's currently selling products that are seen as ancient in the ever-changing technology world.
The company reported a $9-million profit, or two cents per share, for the three months ended Dec. 1, compared with a profit of $265 million or 51 cents per share a year ago.
Revenue totalled $2.73 billion, down from $5.17 billion.
On an adjusted basis, RIM said it lost $114 million or 22 cents per diluted share, coming in notably better than analyst expectations of a quarterly loss of 32 cents per adjusted share on revenue of $2.6 billion.
The adjusted figures exclude the impact of RIM's restructuring efforts and an income tax benefit recorded during the quarter.
The company's cash-on-hand, an important metric, also improved to more than $2.9 billion. Analysts have been concerned for several quarters that the company would be forced to dip into its savings to weather the period before the launch of the new phones. Instead, the company says it will use part of the reserves to help market the products before the launch.
During the quarter, the company shipped 6.9 million BlackBerry smartphones and 255,000 BlackBerry PlayBook tablets, however the company's subscriber base slipped by 1 million to 79 million from the previous quarter.
"The subscriber decline was a surprise. We thought that emerging market strength would probably help maintain that number, so that fact that it slipped... is meaningful," said Bill Kreher, a technology analyst with financial services firm Edward Jones.
"The conversation really doesn't change here. It was a bit of a mixed bag in terms of the results but the company's future still hinges on this Jan. 30 launch."
On the Toronto Stock Exchange, RIM's shares ended Thursday's session up 3.4 per cent, or 46 cents, to $13.95 before the earnings were announced.
The release of the new smartphones will see the Waterloo, Ont., company enter the most important months of its history — ones that will likely determine whether RIM survives in its existing form.
"We believe the company has stabilized and will turn the corner in the next year," Heins told analysts in a conference call.
In its outlook, RIM said it expected continued pressure on operating results in the fourth quarter and warned the timing of the BlackBerry 10 release could hurt sales of its current models as customers wait for the new devices.
RIM also said it expected to significantly increase its marketing spending in the fourth quarter and report an operating loss.
The company also said efforts to save $1 billion before the end of the fiscal year in February are ahead of schedule. It has made significant reductions across its operations, closing facilities, severing ties with certain manufacturers and announced plans to lay off 5,000 workers across its global operations.
"Our core financial objectives have been achieved one quarter ahead of our initial targets and we have already delivered $1 billion in cost reductions this year," Heins said.
"We expect to pursue more opportunities in the coming quarters as we pursue new ways to accomplish things smarter and drive greater efficiency within the company."
With RIM heading into uncertain territory in the new year, RIM's stock price has traded erratically.
Since falling to its lowest level in about a decade in September, the company's shares have surged about 125 per cent, helped by a number of analyst upgrades.
This year, RIM has watched its market share in North America dramatically fall to about four per cent as the BlackBerry became an afterthought in the face of Apple's iPhone and the Samsung Galaxy S3.
And while other companies debuted new devices, RIM was forced to push the launch of its BlackBerry 10 operating system and new phones into next year, missing the crucial back-to-school and holiday shopping seasons.