In the later hours of the after-market session, RIMM shares began to plunge as much as 10% after the company announced plans to modify its service revenue model. This announcement caused investors to question RIMMs profitability since the company relies heavily on revenue incurred from service charges. This announcement also received attention from analysts, who also grew increasingly skeptical towards RIMM. Brian Colello, an analyst at Morningstar said, “RIMM provided few details regarding the economics of these changes, thus adding a large cloud of uncertainty to the primary driver of its profitability, which we view as especially worrisome given risks already surrounding the firm’s massive BlackBerry 10 transition.”
In addition to announcing the modification of their service revenue model, RIMM also reported its first ever loss in subscribers. The loss of subscribers also contributed to the decline in share price. RIMM shares fell to $12.50 in the late after-hours session.
These intended changes to the service revenue model and the loss of subscribers may prove to be very troublesome for RIMM. The company is depending on the success of its soon to be released Black Berry 10 smart phone, and any shred of uncertainty in the profitability of the Black Berry 10 could potentially spell disaster for RIMM.
Author: Tyler Sciortino
Current Student at Roosevelt University, Majoring in Finance.
Contact for questions or inquiries at tsciortino@mail.roosevelt.edu