BlackBerry Q4 Preview: Acquisitions, Recent Customer Wins Will Drive Software Business

BlackBerry (NASDAQ:BBRY) is scheduled to publish its Q4 FY 2016 earnings on April 1. ^[1] While we expect the results to be driven primarily by the software business – which should benefit from recent customer wins for BES and inorganic growth – the handset business will also be a key area to watch, as Q4 marks the first full quarter of availability of BlackBerry’s Android-powered Priv device. Below is a quick run down of what to expect when BlackBerry publishes earnings Friday.

We have an $8.50 price estimate for BlackBerry, which is slightly ahead of the current market price.

See our complete analysis for BlackBerry here

Software Revenues Will Rise On BES Customer Wins, Acquisitions

Blackberry Enterprise Server – BlackBerry’s enterprise mobility management solution – should see revenues grow on the back of recent customer additions. The uptake for BES in the regulated industry has been quite strong, with the company adding a total of about 2,400 enterprise customers in Q2 and 2,700 customers in Q3 2016. Since BES has moved to a subscription-based model, the recent customer adds should provide some stickiness in core software revenues going forward.

BlackBerry made several acquisitions over the last two years in order to bolster its capabilities in the mobile device management and secure communications space. Revenues from recent deals stood at about $20 million (12.5% of software sales) during Q3, and it is likely that the number will trend upwards in Q4. The fourth quarter marks the first full quarter since BlackBerry closed its $425 million purchase of Good Technologies, an EMM software provider. Good is projected to add roughly $160 million in GAAP revenues over the first year post-closing, and it is possible that it could have a meaningful impact on Q4 revenues as well. (related: BlackBerry’s Good Technology Acquisition Is Smart, Does It Impact Its Valuation?)

Technology licensing has also been playing a significant role in BlackBerry’s revenue stream of late ($53 million in Q3). However, most of these revenues are not recurring, so we will have to wait and see how BlackBerry performs on this front for the quarter.

SAF Revenues May Be Overtaken By Software

BlackBerry’s lucrative service access fee business will continue to decline amid subscriber attrition from legacy BlackBerry device platforms. BlackBerry projects a 15% sequential decline in revenues each quarter, and it’s possible that software revenues could eclipse SAF revenues for the first time this quarter. During the previous quarter, SAF revenues stood at $173 million and the company had 25 million subscribers. ((BlackBerry’s (BBRY) CEO John Chen on Q3 2016 Results – Earnings Call Transcript, Seeking Alpha, December 2015))

Hardware ASPs Could Trend Upwards; Volumes In Focus           

Q4 marks the first full quarter of availability of the Priv, BlackBerry’s first Android-based handset. The device is seen as a last stand of sorts for BlackBerry’s handset business, which has been reeling after a string of underwhelming launches. While it’s likely that handset ASPs will trend higher this quarter, owing to the Priv’s premium price ($700 unlocked, at launch), shipments will be a key metric to watch as BlackBerry ramps up production and improves channel inventory.  BlackBerry shipped just about 700k handsets during Q3, down from about 800k in Q2, marking its fewest shipments since at least 2007. ^[2]

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1. BlackBerry Investor Events [↩]
2. BlackBerry Q3 2016 Press Release [↩]