Will the recently completed quarter finally be the one that BlackBerry Ltd (BBRY) stock shows the market some much-needed organic growth in its software division?
Although the number was up 106% on a year-over-year basis — to $153 million — in the previous quarter, the bulk of that growth stemmed from the November acquisition of once-rival Good Technology. Good is expected to add $160 million worth of GAAP revenue during its first year, or roughly $40 million in additional revenue per quarter.
Meanwhile, on a sequential basis, software sales fell 13%, while Q4-2016’s hardware sales slumped 15% from Q3’s tally, and fell from $274 million to $184 million on a year-over-year basis.
It’s getting increasingly difficult for owners of BBRY stock to remain as optimistic as CEO John Chen still seems to be about the future.
BlackBerry Earnings Preview
As of the latest look, the pros say, on average, BlackBerry will lose 8 cents per share on revenue of $470.3 million. That top line expectation is 28.5% less than the year-ago top line, and the bottom line outlook — to the extent it matters — is slightly uglier than the 5 cents per share of BBRY the company posted in the comparable quarter from a year earlier.
To its credit, the company has topped earnings estimates in each of its last two quarters, and topped income expectations in seven of the prior nine quarters. Then again, the bar was set pretty low; analysts collectively expected net losses in each of the past eleven quarters.
As for how the upcoming quarterly report fits into the bigger-picture earnings trend, the chart of past and projected revenue and earnings tells the tale.
3 Things for BBRY Owners to Mull
While several factors are pushing and pulling on BBRY stock, a handful of these forces are doing more pushing and pulling than others. Getting a firm grip on these will let a current or would-be shareholder gain a much better feel for what the foreseeable future holds. In no certain order …
1. Exiting hardware altogether
It’s an idea that has been batted around for a while, but it’s becoming less hypothetical and more of a sound suggestion — BlackBerry would be better off being altogether out of the phone-making business and instead just focusing on software and services.
Wells Fargo analyst Maynard Um was the most recent pro to float the idea:
“The attempt at the high end smartphone market appears to not have been successful with disappointing unit volumes. Hence, we are not overly optimistic about BlackBerry’s chances in the Android hardware market though nor is it embedded into our forecasts.”
2. Integration challenges
While John Chen’s premise of becoming a mobile enterprise software powerhouse makes sense, the BlackBerry buying spree may be close to becoming an unwieldy hodgepodge of companies that become difficult to integrate effectively under one umbrella. Just within the last several months, the company has purchased AtHoc, Good Technology, WatchDox and Encription, and while the assembly has worked so far, the more acquisitions made, the messier the collection can all get.
3. $2.36 billion
While BlackBerry may be falling apart at the seams, nobody can say it can’t afford to fund the implosion for a long, long time. It has $2.36 billion worth of cash or near-cash in the bank, which — barring any more acquisitions — could fund a few years’ worth of losses. Or, maybe/hopefully Chen will be able to use that funding to buy some much-needed time to find a business formula that works.
Bottom Line for BBRY Stock
While it has been said of recently reported quarters, perhaps more so than any of the others, BlackBerry desperately needs to show the market something impressive on Thursday morning.
Fans and owners of BBRY stock will point out that the company is projected to turn cash flow positive again next quarter. That’s a tainted victory though. The company has been shrinking its way to success, and if it bows out of the hardware business, it will re-double that effort.
Either way, BlackBerry is still projected to post GAAP losses in each and every quarter through the next two years. At some point to become viable, it has to turn that around. Nobody sees that happening any time soon.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
