MKM Analyst Sheds Light On BlackBerry's 'Bright Spot'

In a report published Wednesday, MKM Partners analyst Michael Genovese maintained a Neutral rating on BlackBerry Ltd BBRY, with a price target of $8.50, after the company delivered a soft quarter. BlackBerry reported its F1Q16 revenues and EPS at $658mn and ($0.05), short of the consensus estimates of $686mn and ($0.03), respectively. The company shipped merely 1.1mn handsets, representing a 15 percent decline sequentially and a 31 percent decline y/y, while also missing the MKM Partners estimate of 1.5mn. "The Hardware revenue miss ($263mn actual vs. $325mn MKMe) contributed ~250% of the total revenue shortfall for the quarter as the company delivered a headline Software revenue beat driven by one-time technology licensing deals," analyst Michael Genovese wrote. While the headline Software revenue appeared robust, it seems that more than 50 percent of this was contributed by one-time licensing payments from Cisco Systems, Inc. CSCO and an undisclosed company. BlackBerry maintains its Software revenue guidance of $500mn for FY16, although it has "backed off its view of $100mn in BBM sales" indicating that this product was "taking longer to contribute." In the report MKM Partners noted, "The plan to achieve $500mn is based on 20% organic Enterprise growth to ~$300mn plus technology licensing plus acquisitions, some of which are done and some of which are still to come. Management expects to close more licensing deals later in the year, but said additional revenue recognition may be back-end loaded."