Key Trends To Watch As BlackBerry Reports Q1 Earnings

by Trefis Team
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BlackBerry (NASDAQ:BBRY) is expected to publish its Q1’18 results on June 23. We expect the company’s revenues to trend lower on a year-over-year basis, amid lower service access fee and hardware revenues, although this could be partially offset by higher enterprise mobility software sales. Below we provide a brief overview of what to expect when BlackBerry publishes earnings.

Trefis has an $9.50 price estimate for BlackBerry, which is slightly below the current market price.

See our complete analysis for BlackBerry here

EMM Business Should Drive Software Revenue Growth

Late last year, BlackBerry updated its EMM offering by integrating its BES (BlackBerry Enterprise Server) software and the Good Technology product that it acquired in 2015, naming the product BES UEM. The EMM business has been gaining traction, with the firm processing 3,532 customer orders during Q4 2017, marking a 16% sequential increase, with its exposure to non-regulated industries – which are traditionally not BlackBerry’s forte – rising. The recent customer wins should allow the firm to bolster overall revenues during the quarter, as BlackBerry now employs a licensing model for the software.

Updates On Fleet Management Business

BlackBerry has been increasing its presence in the fleet management space with its Radar solution, which enables transport companies to transmit information regarding the location, temperature and physical contents of their trucks. During Q4, BlackBerry won a contract with Trailer Wizards, Canada’s largest commercial trailer rental company with about 25k trailers. BlackBerry charges $10 to $20 per month for every trailer connected to Radar, implying that the business could become lucrative if BlackBerry scale up its installed base. That said, the fleet management market is very fragmented and bigger players such as Verizon have also been doubling down on the market via acquisitions. Larger players are likely to benefit from greater economies of scale and better network effects, posing a threat to BlackBerry’s fledgling business.

Gross Margins In Focus 

BlackBerry’s high margin service access fee business, which accounts for more than a third of the firm’s operating profits, is declining fast, as users migrate from its legacy smartphone platform. During Q4 2017, SAF revenues stood at about $49 million, and it is possible that we could see a sequential decline of close to 25% this quarter. Moreover, BlackBerry has indicated that its software growth is also expected to slow further in FY’18 to levels of 13% to 15% in FY’17. As the SAF business tails off and software growth slows down, BlackBerry’s gross margins – which stood at about 60% last quarter – could come under some pressure. That said, the firm’s move to exit the money losing hardware business will help to offset some of the pressure.

Looking For Greater Transparency In Software Reporting

Although software is likely to account for over two-thirds of BlackBerry’s revenues this year, the company has not been breaking down its various software-related revenue streams, leaving a lot of uncertainty from a forecasting standpoint. The company also does not regularly provide other metrics such as subscriber figures, average revenue per subscriber and churn rates, which are typical of firms providing SaaS products with recurring revenues. We will be looking for greater transparency from BlackBerry’s software unit going forward.

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