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Analysts Hesitant On BlackBerry Following Weak Earnings

Analysts Hesitant On BlackBerry Following Weak Earnings

BlackBerry Ltd (NASDAQ: BBRY) released weaker-than-expected Q1 earnings on Monday, prompting a dip in the company's stock. Nevertheless, there were a few bright spots in the report, including positive signs for the tech firm's software business.

The mixed signals have analysts on the Street feeling ambivalent, endorsing neither clearly bullish nor bearish theses.

Missed Revenue And EPS

In a report published Tuesday, Canaccord Genuity's Michael Walkley highlighted BlackBerry's $658 million in Q1 sales, comprised of $263 million from hardware and $252 from services. Consensus estimates placed the figures at $689 million, $328 million, and $272 million respectively. Software revenue, Walkley said, was the one bright spot on the balance sheet.

William Power of Baird Equity was particularly discouraged by a weak device sales -- 1.1 million versus an expectation of 1.4 million.

Although revenue actually grew in North America year-over-year, every other region worldwide suffered sharp year-over-year and sequential declines, according to Power.

He also mentioned an EPS loss of $0.05, which was below his estimate of $0.03.

CIBC analyst Todd Coupland said in a Tuesday report that the earnings miss demonstrated that "BlackBerry's turnaround still has a way to go. It is too early to determine if its plan (software for service) can be successful."

Software For Service

BlackBerry beat estimates of revenues from software sales, but this was accompanied by an accelerated decline in revenues from service provision.

In a report published Wednesday, Credit Suisse analyst Kulbinder Garcha noted software revenues of $158 million, which represented a 156 percent year-over-year and 106 percent increase. Meanwhile, he said, service revenue dropped 19 percent quarter-over-quarter.

Garcha added a caveat to the reassuring software numbers. He said they were helped substantially by two cross-platform licensing deals and to a smaller extent by M&A. According to his estimates, the core software business only has only grown about 20 percent over the past year, which he called a "modest rate at best." Coupland had predicted 70 percent growth in this area.

MKM Partners' Michael Genovese said in a report published Tuesday that the licensing deals with Cisco (NASDAQ: CSCO) and one other company accounted for 50 percent of software revenues for the quarter.

Yet not everyone was pessimistic. Daniel Chan of Daily Edge Equity research said in a report published Wednesday that "license fees from a powerful company, such as Cisco, implies other deals are likely to follow."

Nevertheless, Coupland doesn't see software growth coming close to compensating for lost services revenue. He projects that BlackBerry will lose $767 million in services in fiscal year 2016, while software sales will only give the company a $250 million boost.

Below are the ratings of the analysts quoted in this article:

  • Canaccord Genuity: Hold (unchanged), $8.00 PT (down from $10.00)
  • Baird Equity Research: Neutral (unchanged), $9.00 PT
  • CIBC Institutional Equity Research: Sector Underperformer, $6.25 PT
  • Credit Suisse: Underperform (downgrade), $6.00
  • Daily Edge Equity Research: Sector Perform (unchanged), $12.00 PT (down from $12.50)
  • MKM Partners: Neutral (unchanged), $8.50 PT (down from $10.00)

Posted-In: Baird Equity Canaccord Genuity CIBC Credit SuisseAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga


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