BlackBerry Ltd (BBRY) earnings were simply horrible.
The company’s revenue of $487 million represents a loss of 26% year-over-year and a $76 million miss to analyst expectations.
Given how hard BBRY management was willing to pump its software and services business, we can conclude that its hardware business, and specifically its Priv, has just about become irrelevant and was a primary cause for the big earnings miss.
From there we can conclude that the Priv will not save BBRY stock.
Takeaways from BBRY Stock’s Q4
BlackBerry’s fourth quarter and fiscal 2016 PR had very little to say about hardware and smartphones. Furthermore, BBRY CEO John Chen did not discuss in detail the struggles of smartphones, and tried very hard to limit discussions during the Q&A part of its conference call to software and services.
The reasons are obvious. Software and services revenue grew 106% in Q4 and 113% in fiscal 2016 to top the company’s previous guidance for $500 million in the year. Therefore, BBRY is guiding for organic growth of 30% in the software and services business, significantly greater than many analysts had previously forecasted.
However, if software and services are thriving at BBRY, and revenue missed expectations by $76 million in the quarter, then one can conclude that hardware and smartphone sales are performing really poorly.
The sub-600,000 smartphones that BBRY shipped during the quarter represent a huge loss from the 700,000 last quarter, and the 800,000 the quarter before that. Furthermore, after growing its average selling price by 31% to $315 during its last quarter, ASP fell back during the quarter, thereby suggesting that its Priv smartphone will not be the savior that many thought it would be.
It’s Time to Walk Away From BBRY Stock
The Priv was BlackBerry’s first Android-powered smartphone, launched late last year at a premium price of $700. This move allowed BBRY to target the near-85% of worldwide smartphone users on Android, versus trying to attract consumers to the inferior BlackBerry operating system.
After a seemingly strong performance last quarter, despite it only being sold at AT&T Inc. (T) for one month during the period, expectations were sky high among many BBRY longs.
The fact that disappointing smartphone sales caused such a big revenue miss during the quarter pushed BBRY stock lower by 9% in premarket trading. After previously talking up the potential of BlackBerry smartphones with Android, Chen has turned his attention solely to software and services, and made comments about “getting out of that business” if BBRY cannot make money (in hardware).
Chen admits that the high-end smartphone market is saturated, and seems ready to push down the price of Priv and future Android phone prices in an attempt to grab market share. However, Chen made clear on the conference call that “he’s not ready to talk about that” just yet.
The fact is that BBRY does not seem to have a plan when it comes to hardware, and is now asking investors to trust that software and services sales can continue to grow rapidly despite ongoing shipment declines in their smartphones.
Bottom Line for Blackberry
In my opinion, the decline in smartphone shipments and the Priv’s disappointment is a much bigger deal than Chen would have you believe.
Not only did Q4 represent the Priv’s first full quarter of availability, but BBRY expanded its sales channel from AT&T exclusively to T-Mobile US Inc (TMUS) and Verizon Communications Inc. (VZ) during the quarter. Not even this expansion could stop the bleeding.
But perhaps most importantly, Chen acknowledged on the conference call what most investors already knew — that the success of software and services “ties in” with hardware. Hence, consumers who buy BlackBerry smartphones are more likely to use their software and services.
Nonetheless, BlackBerry’s earnings were disappointing to anyone who thought they had a legitimate shot at success with Android-powered phones. The failure really illustrates just how quickly the BlackBerry brand has fallen with consumers.
After seven years of continuous failures and no legitimate light at the end of the tunnel, investors should use this Q4 report as final proof that it is time to cut ties with BBRY stock, permanently.
As of this writing, Brian Nichols does not own any of the aforementioned securities