Key Takeaways From BlackBerry’s Q2

September 29th, 2014 by Trefis Team

BlackBerry (NASDAQ:BBRY) posted relatively strong Q2 2015 (FY ends in February) earnings on September 26, beating expectations on earnings but falling short of the market consensus on revenues. The company’s restructuring initiatives have certainly been yielding results, helping to cut quarterly adjusted net losses to around $11 million from about $60 million in the previous quarter, while reaching break even adjusted operating margins. [1] However, the company’s top line remains a concern, with quarterly revenues continuing their descent, falling from around $966 million during Q1 to around $916 million currently. Here is an overview of some of the key takeaways from the company’s earnings release.

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Subscriber Declines Continue, But EZ Pass Additions Are Encouraging

While BlackBerry’s has been counting on its enterprise-focused software and services business to drive its turnaround, the company’s subscriber base has been shrinking, falling by about 10% during Q2. The company has been trying to stem the decline and attract more customers to its BES 10 platform through its EZ Pass program, which allows organizations running BES 5 or competing Mobile Device Management (MDM) platforms to switch to the BES 10 offering for free. BlackBerry then intends to monetize these users by charging them for tech support and by encouraging them to upgrade to more premium versions of the service that offer enhanced security features. The company noted that the EZ Pass program had added roughly 2.2 million licenses during the quarter, marking a three-fold increase from the previous quarter. In total, about 25% of total licenses issued to date under the program are traded in from competing platforms such as Mobile Iron and Good. [2] The EZ Pass program could possibly begin contributing to BlackBerry’s revenues from Q4 onwards, given that customers have to start paying for support starting from February 1, 2015.

Hardware Sales Stabilize

While BlackBerry’s handset business has seen a precipitous decline over the last year, things seem to be stabilizing, with the company reporting that the division was profitable at the gross margins level (Non-GAAP). Handset shipments grew to about 2.1 million units, up from around 1.6 million units last quarter likely aided by the company’s low-priced Z3 handset as well as some legacy BB7 based models. Channel inventory was also reduced, as the company’s sell through improved to around 2.4 million units. BlackBerry has been taking several steps – including reducing headcount and increasingly outsourcing manufacturing – in order to shore up its handset business. Although we think it’s unlikely that BlackBerry’s handset business will be a meaningful driver of earnings going forward, it could remain important for the company to keep its core base of government and enterprise users engaged and in turn drive software and service sales.

BlackBerry Messenger Sees User Base Expand

The use of mobile messaging applications has been growing rapidly, driven by higher smartphone penetration and the availability of affordable data plans in most developing markets. BlackBerry has been looking to revitalize its BBM messaging service, opening it up to rival platforms such as Android and iOS. The company reported that monthly active users (MAU) grew by around 6% sequentially to around 91 million, likely due to the addition of a Windows phone version of the application this quarter. BlackBerry is looking to monetize its BBM service – targeting revenues of roughly $100 million from BBM by FY 2016 – through various avenues including advertising, mobile payments and BBM protected (a messaging platform for security-conscious enterprise users).

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Notes:
  1. BlackBerry Earnings Press Release, BlackBerry, September 2014 [↩]
  2. BlackBerry’s (BBRY) CEO John Chen on Q2 2015 Results – Earnings Call Transcript, Seeking Alpha, September 2014 [↩]