BlackBerry Earnings Preview: Credit Suisse Keeps Bearish Outlook

BlackBerry Ltd BBRY is scheduled to report its FQ3 2017 results on December 20. The company is likely to miss the consensus revenue and gross margin expectations, and in the longer term, SAF and hardware revenue would likely go to zero, with in-house Blackberry hardware being discontinued, Credit Suisse’s Kulbinder Garcha said in a report.

Garcha reiterated an Underperform rating on the company, with a price target of $6. He projected BlackBerry’s FQ3 2017 revenue at $304.0 million, down 45.4 percent year-over-year, 13.6 percent sequentially and below consensus expectation of $332 million. Gross margin could come in at 61.2 percent, resulting in an EPS of -$0.03, missing the consensus expectation of -$0.01.

Looking At The Long Term

Garcha projects software revenue growth of 13 percent for FY 2018 and 12 percent for 2019. He expects service and hardware revenues to be eliminated. These point toward a long-term revenue potential of $850 million by 2019.

“We note that BlackBerry's software portfolio is average, at best, and has been built up by acquiring average software assets,” the analyst wrote. He added that the software revenue estimates were “generous,” citing the quality of some acquisitions made in the Software segment, especially Good Technology.

Moreover, the mobile device management market was facing stiff competition.

Garcha expressed concern over the SAF business, which still contributed a significant share of the company’s operating profit. He further commented, “Despite the company transitioning its hardware business strategy, we believe, with the current structure, BBRY would still not be profitable unless software scales or the company cuts operating costs (which is happening).”