It’s an admittedly overused assessment, but if it’s true, then it’s true — Friday’s quarterly update from BlackBerry (BBRY) could be the one that either makes or breaks the struggling company.
As such, current and would-be owners of BBRY stock will want to pay particularly close attention, not just to what the company says, but what BlackBerry doesn’t say.
Fans and owners of BBRY stock will be quick to point out that the company is in the midst of a turnaround, moving from being a hardware-focused company to being a software-focused outfit. And that’s true … BlackBerry knows it can’t meaningfully compete with more popular phones from Apple (AAPL) and Samsung (SSNLF).
But, just because it’s wading deeper into software waters doesn’t inherently mean it’s going to do well there.
Here’s what investors need to think about before Friday morning’s quarterly update is released.
BlackBerry Earnings Outlook
Just as a refresher, last quarter — the company’s first fiscal quarter of 2016 — not only did BlackBerry fall short of earnings estimates by posting a bigger-than-expected per-share loss, but the top line came up well shy of estimates. Revenue also fell 32% on a year-over-year basis. The strong growth in software sales was nowhere near enough to offset a sharp decline in phone sales.
It doesn’t cast an encouraging light on the numbers due Friday.
As of the latest look, analysts collectively believe BlackBerry will lose nine cents per share of BBRY stock on $611 million in revenue. The projected bottom line is worse than the two cents per share the company lost in the second fiscal quarter of the prior year, when it drove $916 million in sales.
As was noted, many investors (well, some investors) are willing to let disappointing numbers slide for the time being as the company continues to migrate toward being a software-centric operation. There was even measurable growth on that front last quarter — software and licensing revenue grew 150% on a year-over-year basis.
There’s a problem though: While the software growth rate was big-time, it may not have been repeatable at those levels. The bulk of Q1’s software revenue was driven by only two deals, and may or may not be recurring to any real degree — details were scant.
In other words, with device sales fading and the company essentially phasing out of that business, yet with no real clarity on what kind of revenue software and services may drive, all owners of BBRY stock are really left with is the well-voiced optimism of CEO John Chen.
It’s not enough.
Clarity may start to materialize Friday, though, for better or worse.
2 Things for Investors to Mull About BBRY Stock
While the rise of software and services at the expense of smartphones is the crux of the turnaround story, there are a handful of other factors in play. These are the details traders may want to keep on their near-term radar before, during and after the BlackBerry earnings call.
1. Android Phone: For a company that says it’s diverting resources away from its device business — which, to put it plainly, has been disappointing of late — and toward its software business, it’s curious that BlackBerry has decided to launch yet another new smartphone. This one is different, though not necessarily for the better. As it turns out, the next big phone from BlackBerry is going to run the Android OS from Google (GOOG, GOOGL). It’s an interesting attempt to penetrate the market with a more familiar device, but the company is way behind more established Android phone lines like the Samsung Galaxy series, and the phone may be seen as a desperate effort to regain relevancy rather than a serious device.
2. Acquisitions: Earlier this month, BlackBerry announced it would be acquiring enterprise software competitor Good Technology for $425 million. Though not a terrible deal (Good will accretively bring about $160 million in annual revenue to the table), it was suggested that the union of the two companies doesn’t necessarily make it any more competitive against much bigger rivals. The question is, will BlackBerry continue to acquire companies, and if so, will they actually drive organic growth by creating new, novel and marketable products?
Bottom Line
Never say never. BlackBerry may well pull its fat out of the fire yet. But, it’s heading into Friday morning’s earnings release surrounded by a lot of doubt, which could easily mean a bearish spin is put on anything but the decidedly bullish points made about last quarter’s numbers.
Existing or potential shareholders of BBRY stock will want to be prepared for the worst on Friday, even if they’re hoping for the best.
The market is getting restless with BlackBerry, which remains long on talk but, so far, short on results.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
