BlackBerry Ltd (BBRY) Stock Succumbs to the Creep of Doubt

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BlackBerry Ltd (NASDAQ:BBRY) was up more than 50% since its previous quarterly report, so investors clearly expected to hear more of the same encouraging news this morning. Given a 6% decline in BBRY stock Friday morning — one that accelerated to double digits within the first few hours of trading — it’s also clear that the bulls might have been a bit ahead of themselves.

BlackBerry Ltd (BBRY) Stock Succumbs to the Creep of Doubt

While overall revenue fell thanks to the company’s exit from the smartphone business, its new software-oriented focus seemed to be getting traction. Nonetheless, BlackBerry shares are hurting following the release of mostly disappointing fiscal first-quarter numbers. Although the bottom line topped expectations, the top line’s shortfall was short by more than just a little.

The weakness suggests the organization’ new software focus may not be the panacea many presumed it would be.

BlackBerry Earnings

For the quarter ending in May, Canadian mobile software outfit BlackBerry earned 2 cents per share on GAAP revenue of $235 million ($244 million in non-GAAP sales). Analysts had been calling for a breakeven quarter on revenue of $264.5 million. The company broke even in the same quarter a year earlier, when it generated $424 million in sales.

The breakdown of last quarter’s numbers, however, means so much more for this company … which is a work in progress.

For the three-month stretch in question, BBRY’s non-GAAP software and service revenue rolled in at $169 million, or $160 million on a GAAP basis. BlackBerry drove $165 million worth of non-GAAP revenue in the comparable quarter from a year earlier. The tepid year-over-year growth calls into question just how well the new strategy is paying off.

Things weren’t much better on other fronts.

Non-GAAP revenue for the BlackBerry Technology Solutions arm only grew from $35 million to $36 million. Licensing and IP sales advanced from $25 million a year earlier to $32 million.

The crux of the year-over-year lull was the absence of exposure to the hardware — smartphone — market. While BlackBerry-branded phones are still available, they’re made under license by TCL. That licensing revenue hardly offsets the impact of BlackBerry’s abdication of the smartphone market. Revenue from handheld devices only amounted to $37 million in the first fiscal quarter of 2018, down from $152 million a year earlier. Service access fees slumped from $106 million to $38 million.

CEO John Chen commented on the first-quarter results:

“Our financial foundation is solid. We reported non-GAAP profitability for the third consecutive quarter, and our balance sheet continues to strengthen. More importantly, we are better positioned to invest in our strategic areas of focus to drive long-term sustainable growth, while returning capital through share repurchases to further enhance shareholder value.”

Also during the quarter, BlackBerry was awarded $940 million from Qualcomm, Inc. (NASDAQ:QCOM) after successfully convincing an arbitrator that Qualcomm had been overcharging the company for use of some of its patented technologies.

The organization ended the quarter with a little more than $2.2 billion in cash and short-term securities on the books. That was a marked improvement from the less than $1.4 billion it had in the bank just a quarter earlier.

New, But Not Necessarily Improved

BlackBerry was arguably the pioneer of the smartphone movement, unveiling the namesake device — the BlackBerry 5810 — back in 1999. For years it dominated the market, but once Apple Inc. (NASDAQ:AAPL) unveiled its first iPhone in 2007, the ensuing smartphone wars increasingly left BlackBerry out of the mix. No subsequent versions of the smartphone have been enough to let the company regain market share.

Last year, largely at the direction of CEO John Chen, the organization decided to focus on cultivating its software and mobile-security product line and abandon its hardware ambitions. The new-found focus maximizes the company’s core competencies.

Last quarter’s results again underscore the slow progress BBRY has made on that front, though it’s worth noting much of that growth may not have been entirely organic growth. The company has made a string of acquisitions of late, including AtHoc and Good Technology in 2015, and Encription in 2016. These technologies have been integrated into BlackBerry’s product/service menu.

At the same time, BlackBerry has been doing some developmental work of its own, leveraging and assimilating acquired technologies. The company recently unveiled some unified endpoint management (UEM) features,   some of which allow for the safe and seamless integration of office-productivity suites from Microsoft Corporation (NASDAQ:MSFT).

Those bolt-on additions may be small upgrades, but the company is bolting on more of them than many investors may realize, making its platforms as a whole more marketable.

Looking Ahead for BBRY Stock

Prior to the release of the first quarter numbers on Friday morning, analysts were calling for another breakeven result for the quarter currently underway, on sales of $248.2 million. That top-line projection would be down from the $352 million in revenue driven in the August quarter of last year, when the company also broke even. For the full year, the pros see revenue of $987.1 million and a 2-cent profit.

Those numbers are apt to be adjusted now, however, in light of last quarter’s results. BlackBerry didn’t offer much in the way of guidance other than to say its 2018 outlook hasn’t changed. It expects to generate positive free cash flow this year, with sales of software anticipated at or above the software market’s broad growth rate.

That ambiguity isn’t making it any easier for investors to get excited about owning BBRY stock.

Either way, though the software shtick seems to be working for BlackBerry, questions remain whether it’s working fast enough or well enough. New features like the UEM tools that are making the so-called enterprise-of-things (EoT) market a reality are a big deal (some observers say it’s the future of computing), but BlackBerry has hardly secured that market as its own.

Investors made their doubts know Friday morning, in the form of a rather firm selloff.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/blackberry-ltd-bbry-stock-succumbs-to-the-creep-of-doubt/.

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