A fresh wave of analyst downgrades dragged Research In Motion Ltd. shares lower Tuesday, underlining the negative sentiment that now surrounds the BlackBerry maker in the wake of a disappointing earnings report last week.
At least a dozen analysts have cut their price targets and downgraded the stock since Friday, signalling a loss of confidence in the iconic brand's ability to recover from falling market share.
Only five of the 43 analysts following the stock now have a "buy" recommendation, according to Bloomberg. Twenty-five label it a "sell" and 13 call it a "hold."
The BlackBerry maker's shares have lost more than a third of their value in recent days and fell 5.7 per cent on Tuesday to close at $9.70 (U.S.) on the Nasdaq. That follows a 1.6-per-cent drop Monday and a stunning 28-per-cent decline Friday, the same day RIM reported a quarterly loss and said shipments of its new BlackBerry 10 devices fell short of market expectations.
"The company is likely not sustainable for long at this pace without additional significant rightsizing," National Bank Financial analyst Kris Thompson wrote in a report.
National Bank cut its target price for RIM to $8 (U.S.) a share, down from $10, and said it expects BlackBerry's market share to fall to 2.5 per cent in 2015 from previous forecasts of 3.6 per cent.
BlackBerry said on Friday that it now has 72 million customers worldwide, which was down by four million in the quarter ended June 1. The tech giant faces stiff competition from such rivals as Apple and Samsung, and said it expects an operating loss in the second quarter as it invests money to evolve its services to better compete.
Analysts, many of whom have been upgrading the stock in recent months, are showing little patience with the slow-motion turnaround.
"Unfortunately it appears that our longer-term view of the firm's challenges have borne out much more quickly, a result of the extremely competitive smartphone market," Deutsche Bank analysts said in a report after downgrading the stock to sell and lowering its price target to $6 from $8.
"We believe that continuing to run the devices business could be the company's Achilles heel," Deutsche said. "If they choose to keep plowing money into marketing BB 10 devices across the globe, it will create a heavy cash burn unless the uptake begins to quickly gain traction. Historically this has not happened with other handset companies and we do not expect this trend to change with BlackBerry."
Other banks that chopped their targets in recent days include CIBC World Markets, to $14 from $20; TD Securities, to $13 from $17; RBC Dominion Securities, to $15 from $18; and Scotia Capital to $12.50 (Cdn) from $22.40.
"We have drastically reduced our expectations for this year on reduced service fees and lower-than-anticipated uptake of BB 10," Scotia analyst Gus Papageorgiou said in a note. "The lack of short-term profitability makes it hard to justify owning the shares on a fundamental basis."
Cormark Securities is among the few firms that has retained a buy rating on the stock, even though it downgraded it from a top pick. It also cut its price target to $13.50 (U.S.) from $20.
"It's quite clear here that there is more risk to this name that there was before," Cormark technology analyst Richard Tse said in an interview.
Still, he sees hope for the brand.
"RIM's platform transition continues to be an uphill battle. But despite the intense competition, a major product transition and a lack of visibility, we continue to see value in the underlying assets of the company," he said in a note.
Those assets include the company's services business, in particular BlackBerry Enterprise Service 10, a platform for managing mobile services and security across multiple devices, including Apple and Android smartphones.
Mr. Tse notes a number of Fortune 500 companies have downloaded and are using the new platform. In fact, he suggests RIM could potentially exit the hardware business and focus on enterprise services.
"As bad as the results and outlook may be, we believe the sell-off is overdone based on the underlying asset value."
The real test for RIM will be the next quarter, once the BlackBerry 10 has been on the market longer, said Mr. Tse.
At that point, "You can't lean on 'We're early,' any more," he said.