BlackBerry Stock Pops on Surprising Fiscal Q2 Earnings Report

The market could have easily interpreted the glass as being half-empty for struggling smartphone maker BlackBerry Ltd (NASDAQ:BBRY). But investors chose to see the glass as half-full, sending BlackBerry stock up as much as 6% in premarket trading on Wednesday following a surprise earnings beat.

BlackBerry BBRY

Last quarter — the company’s second fiscal quarter of 2017 — the Canadian smartphone and mobile software maker lost 71 cents per share of BlackBerry stock, though when stripping out one-time costs the company broke even. The top line rolled in at $352 million. A year earlier, the company lost 13 cents per share on sales of $490 million. Analysts were expecting a loss of 5 cents per share of BBRY stock this time around, on $394 million in revenue.

CEO John Chen commented, “We are reaching an inflection point with our strategy. Our financial foundation is strong, and our pivot to software is taking hold.”

To that end, BlackBerry’s software and service revenue grew 111% on a year-over-year basis, reaching approximately $155 million, or 44% of the company’s total revenue.

But that growth is coming at the expense of other segments.

Service access fees accounted for 26% of last quarter’s revenue, or $91 million, while mobility solutions (devices) made up 30% of fiscal Q2’s sales. That’s approximately $106 million worth of business for its waning hardware division. BBRY sold $201 million worth of smartphones in fiscal Q2 2016. Service access fees dropped more than half, from $211 million in the same quarter a year earlier.

BlackBerry Quits the Hardware Business … Kinda

In response to weakness in its hardware unit, Chen has finally decided to move forward with a long-discussed plan to get out of the hardware business … at least directly. BlackBerry will completely outsource this function to partners, meaning BlackBerry-branded devices will remain on the market. Chen added, “This allows us to reduce capital requirements and enhance return on invested capital.”

The once-iconic phone maker known as Research In Motion Limited established the smartphone business by unveiling the device that would eventually become its moniker (the BlackBerry) in 1999. They were wildly successful within the business community. But once the Apple Inc. (NASDAQ:AAPL) iPhone was introduced in 2007 and Android devices began to be unveiled shortly after that, not only did BlackBerry continue to struggle in the consumer market, it started to lose ground within the enterprise market.

BlackBerry stock has reflected the demise of the company’s market share, with BBRY shares losing 95% of their value since peaking in mid-2008.

What’s Left?

In an effort to capitalize on its remaining strengths, last year, Chen has refocused the company on enterprise mobility and security, acquiring organizations that would give it new tools to that end. Most recently, it has teamed up with Zimperium to sell a mobile security app, though the app isn’t available on devices that run BlackBerry’s operating system. It will only function on Android and iOS devices, underscoring the notion that its own hardware is taking a backseat to its other software and service ventures.

While BlackBerry may be scaling back its phone business (though perhaps it would be more accurate to say a lack of demand is forcing a scale-back), it’s exploring other uses for its IP portfolio.

The company recently announced it had sold its first devices that help companies keep tabs on fleet vehicles. Just called BlackBerry Radar, the technology not only tracks a vehicle’s location but can also monitor things like a trailer’s temperature and whether or not its door is open.

BlackBerry and Samsung (OTCMKTS:SSNLF) also recently debuted a super-secure tablet that’s aimed at government agencies and enterprise customers.

Looking Ahead for BlackBerry Stock

As for the future, Chen said:

“We remain on track to deliver 30 percent revenue growth in software and services for the full fiscal year. We are revising upward our non-GAAP EPS outlook to a range of breakeven to a five cent loss [per share of BlackBerry stock], compared to the current consensus of a 15 cent loss. This reflects increased confidence based on improving margins and reduced interest expense from the recent refinancing of our debt, as well as planned investments in growth areas.”

Analysts are expecting sales of $1.51 billion for the current year, down 6% from last year’s top line.

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

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