BlackBerry Earnings: Key Takeaways From The Software Business


BlackBerry (NASDAQ:BBRY) posted a stronger than expected set of of Q3 2016 results, driven by higher software sales and sequentially higher revenues from the handset business, which benefited from the launch of the BlackBerry Priv Android device. [1] We will focus this note on the key takeaways for the software unit, however, as BlackBerry has made it clear that its future will be largely about selling software and services.

We have a $8 price estimate for BlackBerry, which is slightly below the current market price. We will be updating our price estimate to account for the earnings.

See our complete analysis for BlackBerry here

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Core Software Sees Growth On New Customer Adds

BlackBerry’s software sales stood at $162 million for Q3 FY’16, marking a 110% sequential jump. Year to date software revenues now stand at $364 million, implying that the company needs another $136 million in software revenues in Q4 to meet its $500 million software revenue target for the fiscal year. Notably, this was the first quarter that the growth in software revenues more than offset the revenue decline from the service access fee (SAF) business. BBRY_Software

Organic software sales growth came in at a strong 43%, taking the sales of BlackBerry’s core software products such as BlackBerry Enterprise Server and QNX embedded operating system to roughly $81 million for the quarter. [2]  The increase is likely to have come primarily from the subscription fees from the 2400+ enterprise customers it added on BES during Q2 as well as the 2,700 customer wins it had for Q3. The company noted that the uptake for BES in the regulated industry was particularly strong, with major wins including HSBC and Depository Trust and Clearing Corporation. BlackBerry has transitioned to a subscription model for BES, so there is likely to be more stickiness in core software revenues going forward. For instance, BlackBerry says that 70% of its software revenues come from recurring sources, and it plans to ramp up the number to about 80% by the end of the next fiscal.

Acquisitions And IP Licencing Account For Much Of The Upside

Revenue from M&A deals, including AtHoc and Good, which BlackBerry closed recently, were estimated to stand at about $20 million for the quarter. [2] It’s likely that this component will only ramp up further as BlackBerry sees the full period effects of the deals, and also as potential revenue synergies are realized. For example, the Good deal helps BlackBerry consolidate share in a largely fragmented enterprise mobility management market (BlackBerry now holds 19% market share, according to IDC’s latest research, up from just about 10%) while improving the firm’s cross platform support. [2] BlackBerry should also have opportunities to cross-sell products and services to its newly acquired customer base.

The firm has also been making progress with its intellectual property licensing, with revenues coming in at about $53 million for the quarter. While a bulk of these revenues are non-recurring, the firm notes that it expects to have a larger recurring component from FY’18 onwards. A lot of BlackBerry’s intellectual property is believed to relate to foundation communications technologies, besides currently hot trends such as secure communications and the Internet of Things, making it valuable in the marketplace.

Key Earnings Takeaways 

  • Revenues stood at $548 million, growing by 12% sequentially. This represents the first time in 9 quarters that revenues have grown sequentially.
  • Adjusted net losses narrowed to $15 million from about $66 million in the previous quarter.
  • BlackBerry shipped 700k phones in Q3, down from 800k in the previous quarter, marking its lowest shipments since at least 2007.
  • Handset ASPs trended higher to about $315 compared to $240 in the previous quarter, owing to the launch of the Priv.
  • SAF revenues fell to $173 million amid continued attrition from BlackBerry’s legacy device platforms. The company currently has roughly 25 million push email subscribers.
  • Total cash, cash equivalents, short and long-term investments stood at $2.71 billion at the end of Q3.

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Notes:
  1. BlackBerry Press Release []
  2. BlackBerry’s (BBRY) CEO John Chen on Q3 2016 Results – Earnings Call Transcript, Seeking Alpha, December 2015 [] [] []