Here Is BlackBerry's 'Leap Of Faith'

• BlackBerry Ltd BBRY shares are down 44 percent year-to-date, remaining below the $8 mark since July 29.
• Sterne Agee’s Rob Cihra initiated coverage of the company with a Neutral rating and a price target of $6.
• While citing three trajectories that could unfold into opportunities for the company, Cihra cautioned that all three would require investor leaps of faith.

Analyst Rob Cihra said that all companies in the mobile and consumer technology space would face the near-term challenge of weaker demand across smartphones, PCs, tablets and TVs, which has been visible year-to-date, particularly in Europe and China.

BlackBerry is in the process of shifting its business and economic model to recurring software. Cihra added, however, that the stock appeared to be “more an option than investment right now.”

Although BlackBerry is now merely a “shadow of its former self” in the smartphone space, it has contained costs to achieve positive cash flow. With this in view, Cihra identified three “vectors of opportunity/direction” for the company:

1. Enterprise Software: The company is trying to replace legacy monthly Service fees derived from BB subs with new value added software/services sold by subscription. “Its challenge, however, of course, is the installed base of BlackBerries is rapidly eroding so multi-OS is a necessity not feature,” the analyst wrote.
2. Hardware: The company is expected to ship less than 4 million units of its proprietary smartphones in FY16, representing a 46 percent y/y decline. This questions whether it is even a sustainable business, “with device gross margins the ultimate hurdle, recently back into double-digit negatives again.”
3. IoT: Cihra believes there is good optionality in the company rolling out an IoT platform, which would leverage its strong QNX embedded software. However, this would be low in revenue and early in momentum, so investors may not be ready to pay much for it as of now.

Cihra added that all these vectors would “still require investor leaps of faith.”