BlackBerry Q1 Preview: Software Business & Android Strategy In Focus


BlackBerry (NASDAQ:BBRY) is expected to publish its fiscal Q1 earnings on June 23, reporting on a quarter that could see the company’s revenues trend lower, as growth in software sales fail to offset declining Service Access Fee revenues and potential challenges to its handset business. Below we outline some of the key factors to watch when the company publishes earnings Thursday.

Trefis has an $8 price estimate for BlackBerry, which is about 15% ahead of the current market price.

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Software Should Grow On Stronger Base Of Recurring Revenue

BlackBerry’s software business could emerge the biggest driver of earnings for the quarter. The uptake for BlackBerry’s EMM offering – Blackberry Enterprise Server – has been quite strong, with the company adding a total of about 3,600 enterprise customers over Q4, with a total of 10,000 customer orders in fiscal 2016. [1] As BES has moved to a subscription-based model, the recent customer adds should provide some stickiness in core software revenues. BlackBerry noted that about 70% of its software revenue was recurring as of the previous quarter. Additionally, Q1 will mark the second full quarter since BlackBerry closed its $425 million purchase of Good Technologies, an EMM software provider, and it is possible that we could see stronger revenue contribution from this as well. IP licensing has also been playing a meaningful role in BlackBerry’s revenue stream of late (about $53 million in Q3). However, as most of these revenues are not recurring, we will have to wait and see how BlackBerry performs on this front during Q1.


BlackBerry_Q1_Preview1

Future Of The Handset Business In Focus

BlackBerry’s hardware business has been performing poorly, with shipments falling by about 55% year-over-year to just 600k units during Q4 FY’16, marking its lowest shipments since at least 2007, amid a string of underwhelming BB10-based handset launches and a slow ramp-up for the new Android devices. Over the last few months, BlackBerry has expanded availability of its Android device – the Priv – on several carriers in addition to doubling down on the e-commerce channel and ramping up enterprise-direct activity. However, despite these efforts, there are indicators that the Android strategy could be facing headwinds. Comments from a representative of AT&T, one of BlackBerry’s biggest carrier partners, indicate that the Priv is “really struggling”, while facing a relatively high rate of returns. These comments don’t bode well for the handset business, as the Android strategy was viewed as a last stand of sorts for BlackBerry’s handset business, with the firm indicating that it could exit the business if it fails to sell at least 5 million units this year. We will be looking for specific numbers and commentary on the uptake of the firm’s Android devices.

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Notes:
  1. BlackBerry’s (BBRY) CEO John Chen on Q4 2016 Results – Earnings Call Transcript, Seeking Alpha, June 2016 []