Most of the time the existence of the web is awesome. It puts people on a level playing field. It’s easy for any Joe Public to write something and get an audience.
But when the uneducated write about financial topics and express their ignorance to everyone else, it isn’t helpful. Case in point, an author at Seeking Alpha wrote an article just recently talking about how BlackBerry’s Z10 will have higher gross margin than Apple’s iPhones.
The analysis was totally out to lunch because it assumed that BOM cost = product cost (sorry, not even close). It also assumed that retail off-contract price = BlackBerry’s ASP (again, sorry this is way wrong).
I wrote a rant at CrackBerry. For those of you interested in what else goes into gross margin analysis you may be interested to read the post here.
I know I give the financial industry a hard time because of its intense short term focus. But in the case of sell side analysts knowing how to model financials versus the amateur writers who publish to anonymous-friendly sites like SA … sorry. The analysts will win every time. They actually understand financial statements.
Hi, I'm Chris Umiastowski. I'm a 10-year veteran of sell side equity research and this is where I come to connect with friends on all things related to tech investing.
{ 4 comments… read them below or add one }
Chris I read the same thing on SA, and resisted the urge to “educate”. Coming from a manufacturing background and distribution seeing gross margin for a manufacuruer related to their retail price made me cringe.
I usually cringe when people are talking about retail pricing of products and comparing them to manufactured costs as the distribution and support network are often ignored in the complaining.
Not sure why you are focussing on some internet blog? There’s an infinite amount of silly stuff published every day. I’m curious to hear your thoughts on Blackberry now that they’ve launched their new OS. For the record I’m hedging again – short Blackberry, long Apple.
Hanke … “Internet blog”? SeekingAlpha is one of the biggest independent contributor based financial sites in the world. When they accept garbage analysis that makes no financial sense, I think it deserves discussion. Anyway, the reason I picked this topic is because people get confused by component cost analysis vs. real world production costs. This topic is recurring. So I picked on this particular article to educate readers on real gross margin vs. considering only BOM cost.
Anyway – BlackBerry … I am totally in love with the Z10. My wife calls it my new girlfriend. It is an incredible experience and I think they’ve proven they are back in the race. That said, the service revenue situation is something I’ve been talking about for a long time and it is a BIG unknown.
And I’m also very long Apple. Unlike you I’m long both BBRY and AAPL. I don’t think it makes sense to short BlackBerry here. In the coming quarters the BlackBerry 10 margin contribution should more than offset any service revenue declines. Longer term? Who knows. But I wouldn’t short it as the Z10 penetrates the world market.
You state “When they accept garbage analysis that makes no financial sense, I think it deserves discussion. ”
Have you read Analyst reports…like those that had a buy on RIM, Bre-X all the way down. Those where utter garbage but what can one expect when the analyst only understands the numbers and not the business or what drives those numbers.
Garbage exists in both the amateur and financial analyst community, the only difference is one gets paid exceedingly well for his/her garbage.