BlackBerry Beats Expectations, But Growth Is Likely To Remain Elusive In The Near Future

BlackBerry (NASDAQ:BBRY) published a stronger than expected set of Q4 FY’17 results, as it cut costs following its decision to exit the handset business, while continuing to grow its mobility software business. However, the firm’s quarterly revenues trended lower by 38% year-over-year to $286 million, as its hardware and service access fee revenues declined. Below, we take a look at some of the key takeaways from the company’s earnings release.

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Software Revenues Expands, But BlackBerry Misses Annual Growth Estimates 

BlackBerry’s software and services business grew by about 39% year-over-year to about $182 million, as the firm’s enterprise mobility software customer base continued to grow. BlackBerry processed 3,532 customer orders during the fourth quarter, marking a 16% sequential increase, with its exposure to non-regulated industries – which were traditionally not its forte – also rising. The firm’s other software-related businesses also gained some traction. For instance, the Radar tracking solution won a contract with Trailer Wizards, Canada’s largest commercial trailer rental firm with about 25k trailers. BlackBerry is also deepened its relationship with Ford Motor, as it transferred 400 employees to work on the auto behemoth’s connected car initiatives.

That said, there are some concerns on the software side. Firstly, the firm missed its target of 30% software growth for the fiscal year, as software and services sales expanded by just about 25% year-over-year to $622 million. Growth is expected to slow further in FY’18, with BlackBerry projecting growth rates of between 13% to 15%. Moreover, there is a possibility that BlackBerry is spreading itself too thin on the software front. Besides its core enterprise mobility management and the QNX embedded business, which are relatively established, the company runs several businesses ranging from instant messaging to fleet tracking and autonomous driving technologies, which currently have minimal revenue contribution.

BlackBerry’s high margin service access fee business, which accounts for over a third of the firm’s operating profits, is also declining fast, as users migrate from its legacy smartphone platform. During Q4, SAF revenues declined by 27% sequentially to $49 million and the trend is likely to continue going forward. As this business trails off and software growth slows down, BlackBerry’s gross margins – which stood at about 60% last quarter – could come under some pressure.

BlackBerry Transitions Its Smartphone Business

BlackBerry’s mobile phone business saw revenues decline 71% year-over-year to about $55 million, as it took steps to exit the hardware space. BlackBerry is transitioning to a licensing model for smartphones, providing 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 smartphones. The move is helping the firm cut operating costs. For instance, during Q4, R&D expenses declined by about 49% year-over-year, as the firm no longer needs to invest in hardware design and manufacturing engineering. BlackBerry has also stepped up its licensing activities, inking a new agreement with Optiemus Infracom, which will design and sell BlackBerry devices in India, Sri Lanka, Nepal and Bangladesh. The firm’s other agreements include Indonesia’s BB Merah Putih and TCL in China. BlackBerry also indicated that it could look to expand its brand into non-phone devices such as tablets.

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