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Goldman Gives 3 Reasons BlackBerry Is Disappointing

Goldman Gives 3 Reasons BlackBerry Is Disappointing

In a new report, analysts at Goldman Sachs downgraded shares of BlackBerry Ltd (NASDAQ: BBRY), which are down substantially on Monday.

The firm now rates the stock as a Sell, "as turnaround efforts reach a challenging phase."

Goldman writes, "As BlackBerry's turnaround shifts from cutting costs to driving revenues, [we see] much higher hurdles given stiff competition, and expect the stock to underperform as the company falls short of profitability targets and expectations."

The firm's investment thesis has three key points:

1) "Software-driven turnaround likely to disappoint" –- BlackBerry has guided for Software revenues of $500 million in fiscal 2016 (Feb), up from $250 million in fiscal 2015, as it ramps a new Enterprise Mobile Management business. However, the firm expects "it to fall short as its target assumes that it can leap frog market leaders Airwatch, Mobile Iron and Good– contrary to our [the firm's] customer surveys."

Goldman models $426 million in Software revenues instead.

2) "Expect losses to widen in 2016, prompting more restructuring" –- The firm projects growing losses and below-consensus EPS "as the legacy high-margin Service revenue falls faster than consensus expectations, while the new Software business grows slower than expected/guided."

The analysts model EPS of ($0.26) for fiscal 2016, versus consensus of ($0.12) compared to an estimate of ($0.19) for fiscal 2015.

Related Link: Goldman Sachs Downgrades BlackBerry To Sell

3) Expect ample miss in February quarter –- While Goldman's thesis is primarily driven by their below-consensus view of Software and Services in fiscal 2016 and fiscal 2017, they also expect "a sizeable (13%) near-term revenue miss in the February quarter on weak hardware sales due to a delayed rollout of the Classic."

However, they expect that "to prove temporary, and expect Hardware sales to drive revenue upside to consensus estimates for FY16/17 on higher ASPs, though not contribute much to EPS given lack of profitability."

Image credit: edans, Wikimedia

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