BlackBerry (BBRY) Stock up on Surprising Earnings Numbers, But …

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On a relative basis, BlackBerry (BBRY) put up some encouraging third-quarter results Friday morning (PDF).

BlackBerry (BBRY) Stock up on Surprising Earnings Numbers, But ...Though, still down from year-ago levels, both the top and bottom lines were above the second-quarter’s respective totals, and both were better than expectations, sending BBRY stock soaring 11%.

On an absolute basis, however, it remains to be seen if BlackBerry stock can be buoyed in perpetuity by the company’s new business model and subsequent growth-by-acquisition.

At some point BlackBerry will have to grow organically, and at some point it will have to decide if being in the hardware game is worth it.

That fact that management didn’t offer any details regarding sales of its new Priv smartphone doesn’t exactly say they were impressive.

BlackBerry Q3 Earnings

In the quarter ending in November, the once-iconic Canadian smartphone maker lost three cents per share on $557 million in revenue. That’s notably less than the $790 million in sales driven in the third fiscal quarter a year earlier, when BlackBerry managed to turn a profit of one cent per share of BBRY stock.

But the numbers convincingly topped expectations for revenue of $489 million and a loss of fourteen cents per share. It was the first sequential sales growth the company had seen in ten quarters.

The most anticipated detail regarding BlackBerry’s earnings report was, of course, how well it did on the software front, its newfound focus.

To that end, investors cheered the 183% year-over-year increase in software revenue, which reached $162 million. With about 70% of that revenue tally said to be recurring business (roughly $113 million), CEO John Chen is just one acquisition away — or maybe just a bit of organic growth away — from his goal of $500 million per year in software sales.

And he’s going to need it if he’s to offset the ground he’s losing on the hardware front. While not broken down by type, total sales of smartphones fell to 700,000 units last quarter vs. 800,000 smartphones sold in fiscal Q2. But the average selling price edged up from $240 to $315, suggesting sales of the high-end Priv made up decent portion of the mix. Total hardware revenue grew from Q2’s $201 million to $222.8 million in Q3.

The Future’s Still Uncertain

While fans and followers of BBRY stock clearly loved the sharp increase in software sales, they should also be reminded that the acquisitions of Good Technology and AtHoc were both consummated during the third quarter, driving the big-time improvement.

In other words, the market should bear in mind that the huge leap forward in software sales cost BlackBerry $425 million for approximately $160 million worth of new annual software revenue per year from Good Technology, and an undisclosed amount of cash for the purchase of AtHoc, which brings an unclear amount of revenue to the table. For perspective though, BlackBerry spent $636 million on acquisitions last quarter.

All told, operating cash flow rolled in at $19 million last quarter, and free cash flow reached $15 million.

Those are numbers that point to viability, and even suggest real organic growth (as opposed to just growth-by-acquisition). It’s not an impressive degree of growth, however, and questions of its sustainability remain.

It’s still entirely possible the company could run out of cash before it reaches recurring profitability, though the odds of reaching viability look better now than they did just a couple of quarters ago.

Bottom Line for BBRY Stock

Credit has to be given where it’s due. Chen may well have been right about transitioning from a hardware-oriented outfit to a software-oriented one.

On the flipside, while the hardware side of the business is bleeding money and should arguably be abandoned, owners of BBRY stock who feel BlackBerry should get out of the smartphone-making business altogether must understand that much of the success on the software side of the business is driven by the hardware the company sales.

In other words, a big chunk of BlackBerry’s differing business lines are a proverbial “package deal.” To what extent one necessitates the other isn’t perfectly clear, which leaves the company in a precarious position.

Nevertheless, there’s more hope now for BlackBerry stock than there’s been in a long, long time. It’s still not an investment for grandma’s retirement account, but for risk-tolerant speculators who can be patient, you could certainly place crazier trades than this one.

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/2015/12/bbry-blackberry-stock-earnings/.

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