BlackBerry Q4 Earnings Preview: All Eyes On The Transitioning Smartphone Unit


BlackBerry (NASDAQ:BBRY) is expected to publish its Q4 fiscal 2017 earnings on Friday, March 31, reporting on a quarter that likely saw the firm scale back on its handset operations, while pushing for greater monetization of its software assets. Below we take a look at some of the key factors to watch as BlackBerry publishes earnings.

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

See our complete analysis for BlackBerry here

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Software Business Will Grow, Offsetting Declines In SAF Revenue

The performance of BlackBerry’s software business will remain a key factor to watch, as the firm benefits from recent enterprise customer wins (9300+ customer adds over first nine months of FY’17) and its shift to a subscription-based model for software sales (~80% of revenue excluding licensing was recurring during Q3). During Q3, software and services revenue stood at about $172 million, marking year-over-year growth of about 49%, excluding IP licensing. BlackBerry has taken some steps to unify its various enterprise mobility and security offerings during the last quarter, enabling it to provide end-to-end solutions to customers. We will be interested to hear updates on the uptake, as well as more clarity on software-related reporting, as the firm currently does not disclose figures such as total subscribers, average revenue per subscriber and churn rates, which are typical of firms providing SaaS products with recurring revenues.

BlackBerry’s lucrative service access fee business (~72% gross margin in Q3) has been trending lower, as customers on legacy devices abandon the BlackBerry platform. During Q4, revenue stood at $67 million, declining by about 61% year-over-year. BlackBerry has guided a sequential revenue decline of roughly 25%, although it indicated that growth in software revenue will offset this.

Handset Business Transition In Focus

Q4 is likely to be a transitional quarter of sorts for BlackBerry’s handset unit, as the firm has opted to stop developing and selling its own devices, while transitioning to a licensing model. BlackBerry will essentially provide its secure Android software and applications such as BlackBerry Hub to its hardware partners, who will take care of the design, manufacturing and marketing of the smart phones. During Q3, sales of BlackBerry’s handsets dropped to $62 million from $220 million in the prior year period, and it’s likely that the decline will continue this quarter. That said, margins could see an improvement as the licensing revenue model should help the firm cut costs. BlackBerry expects gross margins of as much as 90% for licensing. The company now counts Chinese electronics giant TCL, Indonesia’s BB Merah Putih and India’s Optiemus Infracom as licensing partners for devices. A key factor that we will be looking to gauge is the per-handset licensing fees that BlackBerry is able to charge its partners.

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