The BlackBerry is premised on the idea that people will share information — and lots of it. But investors in Research In Motion will soon have to get by with a little less.
RIM’s next fiscal quarter will be the last time it discloses two closely watched metrics: the average selling price of the BlackBerry, and more important, the number of new subscriber accounts. RIM announced the changes during the conference call for its second fiscal quarter results in September. Edel Ebbs, vice-president of investor relations, explained that RIM’s competitors do not have a comparable subscriber metric, and that forecasting new customers is “increasingly difficult given the growing complexity of our business.” The company will now only report the number of total subscribers when it hits a significant milestone.
Analysts are skeptical about the change. “Whenever companies stop reporting data,” says analyst Brian Modoff at Deutsche Bank, “the cynical side of me says they’re trying to hide something.”
The timing of the announcement only fuels the skepticism. Analysts projected RIM would add five million new subscribers in the last quarter, and RIM itself had said it expected to sign up as many as 5.2 million. But the actual number came in at 4.5 million, a drop of 8% compared to the previous quarter. That, according to Modoff, might help explain the change more than increasing complexity. “They didn’t like the sub numbers they were seeing,” he says.
Subscribers are unique to RIM in the smartphone market. Beyond just selling handsets, RIM provides data processing and encryption services to users that boost its bottom line. In the company’s last fiscal year, services accounted for US$2.2 billion — more than 14% — of its total revenue. The number of accounts RIM adds each quarter is also the clearest indication of how many new customers it wins over in the increasingly competitive smartphone market. The big question around the company is how the BlackBerry will stand up against Apple’s iPhone and the variety of handsets running Google’s Android operating system.
“I track subscribers for that reason. The Street tracks it for that. Investors track it for that,” says Scott Sutherland, an analyst with Wedbush Inc. in California. “But there might be internal concern the metric might show weakening adds.” That would be doubly problematic for RIM, as it might inflame fears that RIM is losing its grip on core business users. “When you talk to IT guys about the future, they’re talking about being able to support any device, and employees bringing in their own devices,” Sutherland says.
RIM will also no longer report the average selling price (ASP) of the BlackBerry, which analysts have intensely scrutinized lately. Some are concerned it will fall as RIM targets more consumers and spreads into smaller markets, shrinking the company’s profit margins. “If the ASP declines but it’s still a great business, show that to us,” says Colin Gillis, an analyst with BGC Partners in New York. “If they go up, then show that to us as well.”
Despite having less transparency around these issues, analysts at Scotia Capital suggest the change could actually reduce share price volatility. “There are so many data points for both reported results and guidance that a miss on one of those metrics can be blown out of proportion,” wrote analysts Jason Body and Daniel Chan. That is what happened in the past quarter. RIM’s US$4.6 billion in revenue beat expectations, but the share price barely moved because of concern over the disappointing subscriber numbers.
Co-CEO Jim Balsillie hinted at this reasoning when an analyst inquired about the change on the conference call. “How much information is helpful?” he asked. “And how much do you sort of competitively disadvantage yourself by over-disclosing stuff?”
Other analysts argue the change will have the opposite effect, stoking speculation rather than settling debate. “We’ll be parsing other information and making assumptions that may or may not be accurate,” says Gillis. “Typically, the Street likes more visibility over less.”
RIM, meanwhile, did not respond to interview requests for this article.