It was a rough day for the markets on Friday, but not for BlackBerry (BBRY). Over the last few years, BBRY stock has not seen too many higher days, much less on days when the Dow Jones falls 300-plus points.
But times are changing for BBRY stock, and chances are, there will be far more higher days ahead, and the cause is Blackberry Priv.
What Has BBRY Management and Investors Excited
The reason that BBRY stock jumped 10% on Friday was its reaction to fiscal third-quarter earnings.
In that quarter, revenue fell 30% year-over-year. While seemingly bad, it was much better than the 45% losses that investors have grown accustom to, representing a double-digit increase quarter-over-quarter. However, what really excites investors is the promising implications for the Priv within the company’s report.
BBRY did not report Priv sales figures or actual smartphone unit sales. However, on the earnings call, CEO John Chen did disclose that BBRY recognized revenue on 700,000 smartphones sold.
While 700,000 units still represents a loss from the 800,000 that BBRY sold last quarter, it is important to keep in mind that Priv launched mid-quarter, and to just one carrier in the U.S., AT&T (T).
Looking ahead, BBRY has its eyes set on a worldwide Priv rollout and is also launching the phone with more U.S. carriers. These goals, coupled with the company’s surprisingly strong results for smartphone sales, is why Chen proclaims that losses in hardware are nearing an end.
The Most Important Number From BBRY Earnings
At the end of the day, we still have no idea how many BlackBerry Priv phones were sold vs. older BBRY smartphones that run on its BB10 software. What we do know is that the BlackBerry Priv launched on Nov. 6 and, priced at $700, is a premium product relative to other BBRY smartphones.
As a result, the most telling number from BBRY’s quarterly report was also one of little discussion — the average selling price of smartphones. In BBRY’s fiscal third quarter, its ASP rose from just $240 last quarter to a whopping $315. That’s a 31% increase, and suggests that despite only having one month and one carrier to create sales, the Priv is in fact performing very well, driving the company’s ASP much higher.
Furthermore, the effects of a higher ASP can be seen in other areas of BBRY’s business. As Chen noted, the Priv has cost-saving advantages because BBRY does not have to do everything itself (hardware and software). Instead, it is relying on a superior third-party operating system and only has to worry about hardware. Not to mention, with the Priv being a premium product, margins rise when prices are higher and costs are lower.
Investors saw the effects of strong Priv sales with BBRY’s per-share loss of just 3 cents, far better than the 14 cent loss analysts expected. Also, the company’s gross margin rose from 37.8% last quarter to 43.1% in its most recent quarter.
What Does All This Mean for BBRY Stock?
As reported in a previous article, the BlackBerry Priv means absolutely everything to BBRY stock moving forward. After countless failed attempts with smartphones, adopting the Android operating system was BBRY’s last ditch effort at becoming relevant again, and by the looks of things, the plan is working.
If Priv sales remain strong, then margins and free cash flow will rise. Moreover, in order for BBRY to perform well in software and services, its ecosystem must be strong, which means having a large smartphone user base.
In essence, smartphones, software and services are all connected for BBRY. Therefore, it is no surprise that software and services revenue rose 119% quarter-over-quarter and 183% year-over-year behind BlackBerry’s strong quarter for smartphones.
Therefore, investors should expect the good to get even better. This quarter included just one month with BlackBerry Priv sales, whereas its upcoming quarter will include a full quarter, more carriers, and a global launch.
As a result, BBRY’s ASP and margins should rise, revenue in software and services should soar and BBRY stock should follow these catalysts much, much higher.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.