BlackBerry’s New Technology Bets Gain Traction
BlackBerry (NASDAQ:BBRY) published its Q2 fiscal 2018 results on Thursday, beating market expectations on both revenues and earnings, driven by the growth of its core enterprise software and licensing businesses. The company’s technology solutions business also made some progress, as it notched potentially lucrative design wins in the automotive space. BlackBerry remains positive about its near-term outlook, guiding for non-GAAP revenues of between $920 million to $950 million, ahead of the analyst consensus of about $919 million. BlackBerry’s stock rallied by close to 14% in Thursday’s trading, following the earnings release. In this note, we take a look at some of the factors that drove the results and how the company’s new technology bets are playing out.
Trefis has a $10 price estimate for BlackBerry, which is slightly below the current market price.
See our complete analysis for BlackBerry here
Core Enterprise Business Sees Growth
The company’s enterprise software and services revenue grew by about 8% year-over-year to $91 million on a GAAP basis, driven by its core enterprise mobility management solution, Unified Endpoint Management. Over the last quarter, BlackBerry continued to add UEM customers in regulated verticals such as government and banking. The business is proving relatively stable for BlackBerry, as it has largely transitioned into a subscription-based model, providing the company with annuity-type revenues. Roughly 79% of software and services revenue (excluding IP licensing) was recurring in nature during Q2. BlackBerry’s licensing business – which essentially licenses the company’s intellectual property, technology, and handset brand and software – fared particularly well, with revenues jumping to $56 million, up from about $16 million in the year-ago quarter. That said, these revenues are quite volatile, and BlackBerry has indicated that a bulk of the licensing revenues were not recurring. The company expects intellectual property licensing opportunities to improve over Q4.
New Technology Bets Are Gaining Traction
Besides its core enterprise software and security solutions business, BlackBerry has been focusing on the Internet of Things and automotive space to drive long-term growth. While the Technology Solutions segment, which includes these two initiatives saw revenues remain essentially flat year-over-year at about $38 million, the company has been inking new deals.
On the automotive front, BlackBerry said that auto components behemoth Delphi would use its QNX software to power the self-driving platform that it is building in collaboration with Mobileye and Intel. The company’s advanced driver assist systems (ADAS) also saw some significant design wins with Visteon and other automotive suppliers. These deals should be significantly more value accretive to BlackBerry, although monetization could take some time on account of the long design lead time for new vehicles. For instance, BlackBerry notes that it could earn between $5 to $25 per vehicle as it expands into more advanced self-driving vehicles. In comparison, it currently garners between $1.50 to $5 per vehicle for QNX software it provides for automotive information and entertainment systems.
On the fleet management front, BlackBerry has been focusing on scaling up the distribution footprint of its Radar solution. This could prove crucial as the company looks to take on behemoths like Verizon, which are deeply entrenched in the North American market. Blackberry added two new reseller partners, Fleet Complete, based in Canada, and Pana Pacific, located in California. The company also launched the Radar Lite solution, which is essentially a lower cost version of Radar. BlackBerry expects this solution to expand the total addressable market for Radar from 8 million units to 28 million (related: Does BlackBerry Have A Shot At Success In The Fleet Management Market?).
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap