BlackBerry Earnings Preview: Will Core Software Sales Pick Up?
Investors will be closely watching BlackBerry‘s (NASDAQ:BBRY) software revenues when the company reports its fiscal second quarter earnings on Friday, September 25. ((Investor Events, BlackBerry)) BlackBerry is betting its financial turnaround on the software unit, which primarily sells enterprise mobility management and secure communications software, as it looks to offset the impact of plummeting service access fee revenues and slow uptake of its flagship smartphones. The company has set an ambitious software revenue target of $600 million for FY’16, but it appears to be off to a slow start, as a bulk of its Q1 sales ($137 million) came from one-time patent licensing revenues, while its core software assets remained under-monetized. In this note, we take a look at what to expect from the company’s software products for the quarter.
Trefis has a $9 price estimate for BlackBerry stock, which represents a 25% upside to the current market price.
See our complete analysis for BlackBerry here
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Enterprise Mobility Management
Blackberry’s BES 12 offering has been slow to gain traction, amid intense competition in the enterprise mobility management market, but we believe that things could improve slightly this quarter. The company added 2,600 enterprise customers for BES 12 during Q1, 40% of which were new customers adds. This could help bolster revenues on an ongoing basis, as BlackBerry has transitioned to a subscription model for BES so there is likely to be more stickiness in software revenues. With that said, BlackBerry hasn’t provided much detail with respect to its BES results (revenues, attrition, total paying subscribers, average fees, etc) which has also weighed somewhat on Blackberry’s stock price, given that the company counts the product as one of the pillars of its turnaround strategy. We will be looking forward to additional information this time around.
Value-Added Services
Over the last two years, Blackberry has been acquiring niche technology companies focused on security, privacy and mobile communications. Notable acquisitions in 2014 include Movirtu – a virtual SIM platform that allows the operation of multiple numbers on a single device and Secusmart – a secure communications solutions provider. In 2015, the company acquired WatchDox, a data security company that allow users to protect, share and work with their files on any device, and AtHoc, a provider of a software platform built for delivering emergency alerts to PCs, mobile devices and other hardware. BlackBerry is offering some of these services as value-added offerings along with its BES subscription plans. While the full impact of these acquisitions is only likely to be seen through the second half of the fiscal year, there could be an incremental upside this quarter.
BBM: Advertising, BBM Protected And M-Commerce Updates
BlackBerry said that its BBM messaging application posted one of its strongest months of user growth in July, and we will be closely looking at the company’s progress in monetizing the user base. BlackBerry is targeting $100 million in revenues from BBM this year, and it has been looking at multiple avenues to achieve this target. First, there’s advertising. BlackBerry seems to have made some headway on this front, lining up marketers including the New York Times and Samsung, while also introducing video advertising for BBM. Second, there’s Blackberry BBM Protected, which provides end-to-end encrypted messaging for security-conscious enterprise users for an annual fee. Additionally, BlackBerry is looking to monetize BBM Money – the mobile payments platform for BBM users and BBM Shop – which sells stickers and wallpapers.
QNX: New Deals, Applications In Focus
BlackBerry’s QNX embedded system software is currently used in automotive infotainment systems, medical devices, and industrial applications. Although QNX doesn’t meaningfully contribute to BlackBerry’s earnings yet given its low licensing fees (estimated $3 per automobile), it does hold a lot of potential for BlackBerry, as it fits well with emerging trends such as the Internet of Things and connected cars, which could eventually drive significant volume growth. ((Linux to Take the Lead in Automotive Infotainment Operating System Market, IHS, December 2013)) Earlier in the quarter, BlackBerry announced that it would be collaborating with Intel to work on the connected automobile space. The two firms will focus on new innovations for dashboard functionality within cars, including infotainment systems, digital instrument clusters and advanced driver assistance systems. (related: A Look At BlackBerry’s QNX Business)
Intellectual Property Licensing
Blackberry has gradually been monetizing its patents via collaborative licensing agreements. The company has a total of about 44,000 patents, and its patent portfolio is believed to be one of the youngest in the communications industry. The company’s intellectual property is geared towards currently hot trends such as secure communications, wireless technology and the Internet of Things. During Q1, it inked licensing deals with Cisco Systems and a second, unnamed company. While Blackberry didn’t indicate the terms or financial aspects of the deal, it is estimated to have accounted for close to half of the company’s software revenues for the quarter. We will be watching for similar deals this quarter.
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