Analyst: BlackBerry Owes Q3 Beat To Licensing, Continued SaaS Pivot

BlackBerry Ltd BB reported forecast-beating fiscal third-quarter results last week that benefited from one-time IP licensing revenues and solid software and services revenues.

The Analyst

Imperial Capital analyst Michael Kim maintained an In-Line rating on the shares of BlackBerry and raised the price target from $10 to $11.

The Thesis

BlackBerry is making continued progress on its pivot to software and services, Kim said. (See the analyst's track record here.)

The bulk of the outperformance came from higher licensing revenue, while better-than-expected handheld devices revenue and a slower drop in service access fees also contributed to the results, the analyst said.

Kim also pointed to the 20 percent year-over-year growth in enterprise billings and strength in the government vertical, with the company closing 36 transactions with federal customers greater than $100,000.

"We also believe BB is further expanding its enterprise channel partnerships, especially in the APAC region, resulting in several unified endpoint management wins," Kim said.

Imperial Capital expects continued penetration of embedded software through BlackBerry's QNX unit into the automotive vertical. BlackBerry had 10 new QNX design wins from suppliers in the fiscal third quarter and new/expanded relationships with partners such as QUALCOMM, Inc. QCOM, Denso Corp (ADR) DNZOY and Tata Elxsi.

QNX has limited near-term financial contribution, Kim said. BlackBerry also needs improved visibility on win rates, pipeline conversion, pricing and larger-scale Radar deployments, the analyst said. 

Imperial Capital is of the view that BlackBerry shares offer balanced risk-reward at recent levels. Investors could become more constructive on the stock with higher visibility on the company's growth initiatives and core business segments, Kim said. 

The Price Action

BlackBerry shares are up about 68 percent year-to-date. Since the release of the company's quarterly results Dec. 20, the shares have added 6.7 percent.

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Photo courtesy of BlackBerry.