June 25, 2008 / 8:16 PM / 9 years ago

RIM profit jumps, outlook underwhelms; stock drops

4 Min Read

<p>A shareholder uses his Blackberry while waiting for the Research In Motion annual meeting to begin in Waterloo, July 17, 2007.J.P. Moczulski</p>

TORONTO (Reuters) - Research In Motion on Wednesday posted a profit outlook that fell short of analyst expectations, sending its shares 8 percent lower, even as the maker of the BlackBerry smartphone posted quarterly earnings that more than doubled.

Revenue surged to $2.24 billion in the three months ended May 31 -- up 107 percent from a year earlier -- and the company added 2.3 million subscribers, or about 100,000 more than it expected. About 60 percent of the new subscribers came from outside the company's base of business customers, a plus for RIM as it works to diversify.

But first-quarter earnings of $482.5 million, or 84 cents a share, fell just short of the average estimate of analysts, according to Reuters Knowledge.

More importantly, RIM offered an outlook for its second quarter that appeared to be a letdown for investors.

"The disappointment is on the guidance side and hence the reason for the selloff," said Research Capital analyst Nick Agostino.

"It appears as if they are forecasting earnings for the next quarter to be slightly lower than the consensus estimates," said Duncan Stewart, president of Duncan Stewart Asset Management in Toronto.

RIM's shares, which had risen roughly 20 percent since early April, dropped 7.9 percent in after-hours electronic trading to $131.10 from their regular-session close of $142.34 on Nasdaq.

The stock dropped even as RIM posted first-quarter earnings that rose sharply from a profit of $223.2 million, or 39 cents a share, a year earlier.

The results were a departure from the Waterloo, Ontario-based company's recent quarters, when it comfortably beat analyst forecasts amid rapid growth.

In its outlook, the company said it expects second-quarter sales of between $2.55 billion and $2.65 billion, and earnings of between 84 and 89 cents a share. It also said it expects to add about 2.6 million new subscribers.

The company said it pushed deeper into the retail market during the first quarter, becoming less reliant on its mainstay business customers.

Almost 60 percent of the additions during the quarter were "non-enterprise" -- RIM's term for small and medium businesses and consumers, RIM co-CEO Jim Balsillie told analysts in a conference call. Such users now represent over 40 percent of the total of more than 16 million.

The company is betting that new product launches, such as its recently announced BlackBerry Bold, will fuel growth for the balance of the year and beyond, despite a slowdown in the U.S. economy.

While top-end handsets like the Bold might appeal mostly to large corporate and government clients, RIM also offers a range of multimedia features for consumers with its Pearl and Curve smartphones.

"To support the anticipated growth in the second half, we have been investing and expanding in a number of areas to ensure that we can scale to meet the opportunity ahead of us," Balsillie said.

That has included moves such as television advertising campaigns, hiring more engineers, and expanding and enhancing its network, he said.

($1=$1.01 Canadian)

Additional reporting by Frank Pingue; editing by Frank McGurty

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