Wall Street Still Cautious On BlackBerry

BlackBerry Ltd BBRY sales and headline numbers remained strong for its Q3 report, but while the company appeared above estimates, Wall Street still remains cautious.

Blackberry's stock now runs more than 44 percent from its yearly lows, but some of its near-term items have analysts less impressed with its attempted turnaround.

Credit Suisse remains cautious on BlackBerry's earnings. "While the company may currently be showing possible signs of a recovery, we note that much of this strength can be attributed to IP licensing sales of $53mn this quarter, which was structured with an upfront payment," Credit Suisse commented in a note on Monday.

Credit Suisse reiterated its $6 price target and adjusted its FY16/17 EPS to -$0.29/-$0.30.

The firm sees a difficult transition ahead for BlackBerry: "We believe the company is still faced with a challenging transition ahead.

"We doubt the sustainability of the software business as the IP licensing revenue seems unpredictable. While Software growth outpaced the SAF decline for the first time, we question the quality of some of the acquisitions, especially Good Technology, which could create significant integration risk. We model software revenue of $526mn/$634mn in FY16/17 (+21 percent yoy)," the firm noted.

Related Link: Imperial Is Encouraged By BlackBerry

Imperial Capital has an In-Line Rating and $7 price target on BlackBerry. The firm sees accelerated erosion in the company's Service Access Fees (SAF).

"SAF revenue decreased 18 percent sequentially to $173mn (31% of revenue), below our expectations of a 15 percent sequential decline," Imperial commented. "We anticipate continued erosion in SAF and we estimate nominal revenue contribution by year-end FY19. We believe it will be critical to replace this higher-margin revenue with software and services revenue."

MKM Partners maintained a Neutral rating on the stock in a report released on Friday. "The quarter was not as good as it looks on the surface," MKM analysts noted. The analysts commented that hardware units at 0.7mn were weaker than expected, although ASPs and revenues beat due to one month of Priv sales.

"We still doubt the Hardware business will ever reach sustainable break-even profitability and we do not think the Priv will provide much more than one quarter boost in 4Q before the product cycle begins to fade. Additionally, the upside in Software in 3QFY16 was driven by higher intellectual property revenues than expected, which is likely not sustainable," said MKM Partners.

Analysts at Morgan Stanley commented that "Blackberry still doesn't have much flavor," in its research report released Friday. Blackberry's total number of handsets sold were of 700,000, below Morgan Stanley's expectations of 800,000 handsets. The noted that Priv phones carried higher ASPs than the overall BlackBerry portfolio, but sees purchase activity from existing BlackBerry customers to eventually die down.

"We would expect handset sales to continue to decline," Morgan Stanley commented.