If BlackBerry (BBRY) ever needed a strong quarterly report to restore waning faith in the company’s future, this coming Friday’s fiscal third-quarter update is it.
BBRY stock is down 30% year-to-date on disappointingly tepid phone sales and yet-to-be-realized software and service sales that CEO John Chen has talked about at length but has yet to deliver.
Will this be the one to prove Chen’s bet is on target, and will the ballyhooed Priv phone be the one to change things for the better?
Only time will tell, but given the lack of traction the company has seen on pretty much any front, BBRY shareholders may not want to hold their breath.
BlackBerry Earnings Preview
As of the most recent look, analysts collectively expect BlackBerry to report a loss of 15 cents per share on revenue of $487.9 million, In the same quarter a year earlier, the company earned a penny per share of BBRY stock on sales of $793 million.
If those estimates prove to be on target, the numbers will extend a trend of deterioration that has been underway for years now.
At the root of the headwind, of course, is the accelerating popularity of the iPhone, from Apple (AAPL), the pervasiveness of the Android operating system, from Google, and the fact that both devices are now secure enough to meet the standards of most companies and government organizations. The once-great BlackBerry phones have been all but displaced by competition.
BlackBerry has continued to make smartphones in an attempt to recapture market share, with the Priv — the company’s first Android-powered device — being the most recent entry into that race, but the focal point going forward is going to be software and service sales to enterprise customers.
And BlackBerry is ringing the register on the front … at least a little bit. Of the $491 million in revenue generated in fiscal Q2, 15% of it ($73 million) came from software and services, 43% ($211 million) from service access fees, and 41% ($201 million) came from hardware — sales of phones.
Chen thinks the software division alone could generate $500 million in annual revenue per year, though he’s still well under that mark.
Perhaps the company will be able to acquire its way to that figure; it has made a handful of such acquisitions to that end already. At some point though, BlackBerry will have to grow organically by building a better service and/or product rather than swap its cash for revenue. That’s one thing Chen has yet to prove he can make happen.
3 Things for Owners of BBRY Stock to Mull
The debate over the value of BBRY stock isn’t a complicated one, though it is a heated one.
Either Chen is seeing things the right way by positioning the BlackBerry as an enterprise software company that also happens to sell smartphones, or he’s grasping at straws and the spending on acquisitions is going to cost more than it helps (with integration headaches creating fiscal headwinds).
Be that as it may, there are three specific nuances fans and followers of BlackBerry stock may want to watch carefully, as they’ll be the driver of the stock until the next quarterly report. In no certain order:
1. Priv sales: Though the new Android phone launched in early November, the buzz didn’t get all that loud until last week when Walmart (WMT) announced it had sold out of the device. The market largely cheered the news, even without knowing a specific number of units sold; it’s possible Walmart didn’t have many to begin with. BBRY is slated to report a hard figure for Priv sales on Friday.
2. Viability of acquisitions: The addition of Good Technologies is certain to help the top line, as should the future purchases Chen has alluded to. What’s not clear is if the Good and future deals will boost the bottom line. There was a bit of overlap between the services Good and BlackBerry were offering before the union, so it may or may not be a 100% accretive acquisition. These deals are also going to be irrelevant if BlackBerry doesn’t sell its new and improved services to possibly-confused customers in an effective way.
Note: This won’t be discussed in detail during the conference call, so current and would-be owners of BBRY stock may have to read between the lines and scour the income statement to get a feel for the premise.
3. BlackBerry may want to quit making and selling phones: BlackBerry has rolled out several new smartphones over the past couple of years. None have been game-changing hits. It sold only 800,000 units in the previously-reported quarter, which is a problem, as Chen thinks he needs to sell 5 million phones per year to turn a profit with hardware. If the Priv doesn’t light a fire with consumers (and with a sticker price of $699 that’ll be tough to do), the company may be best served by getting out of the hardware business altogether.
Bottom Line for BBRY Stock
Despite the modest advance from BBRY stock since early October, most investors are rightfully looking at BlackBerry with a “show me first” point of view; doubts are running pretty rampant.
Never say never, but with the sentiment tide already turned for the worst, BlackBerry stock poses more risk than upside … barring some miraculous numbers.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
