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BlackBerry Ltd (NASDAQ:BBRY), Freed Of Handsets, Looks To Software For Return To Glory

BlackBerry Ltd (NASDAQ:BBRY)

Despite freeing itself from the smartphone handsets that weighed on the company’s recent earnings, Canadian-based BlackBerry Ltd (NASDAQ:BBRY) is a having difficulty convincing investors and skeptics that it can redeem itself and return to profitability. The company plans a shift to the software business as the conduit to a return to its glory days.

The once mobile communication giant reported its fourth-quarter as well as full-year financial results last Friday and has no big gaps in its software offering after it integrated all its acquisitions. However, the company acknowledges that a lot of work has to be done to roll out these offerings in the automotive and healthcare sectors as well as other industries that they hope will drive its future growth.

According to Nicholas McQuire, a workplace IT specialist and analyst at CCS Insight, says BlackBerry has evolved over time and is very different from a decade ago. He adds that for the company to awaken its full potential and jump back to profitability, it needs to create awareness among enterprises that are not part of its core regulated business on the ‘new BlackBerry’.

As it stands, many current and potential investors are uncertain of the company’s real value and are eagerly waiting on John Chen, CEO, to issue guidance. The company is counting on a late bump in sales to reach a 30% growth target in software revenue for FY 2016.

According to Thomson Reuters data, BlackBerry has a 3.14 ratio in enterprise-value-to-forward-revenue which is well below Oracle and Microsoft’s 4.5 ratio. Oracle and Microsoft are among Blackberry’s main competitors in the enterprise software industry.

According to estimates by Thomson Reuters I/B/E/S, Blackberry, headquartered in Waterloo, Ontario, will have a hard time to break-even in its fourth quarter and may report below $1.4 billion in revenue in the financial year ended Feb. 28, 2017. BlackBerry Ltd (NASDAQ:BBRY)  used to rake in over $5.5 billion in quarterly earnings.

Blackberry, in a move to remain standing, is targeting the growing, but highly fragmented, market that connects sensors (as well as other devices). BlackBerry Ltd (NASDAQ:BBRY) has significantly invested in these potentially profitable areas including autonomous vehicles and cyber security. According to McQuire, the company is leaning in the right direction with big prospects ahead of it. He also acknowledges that these markets may take time to materialize.

Blackberry’s acquisition of WatchDox and Good Technology in 2015 helped it grab a leading position in the market of enterprise mobility in addition to the key role played by its QNX industrial operating system to drive the company’s dream in the autonomous vehicle sector. These sectors are filled by industry giants – hence presenting very tough competition. But according to Ali Mogharabi, an analyst at Morningstar, Blackberry is still unsure of how it will pick up and make progress in the autonomous driving sector.

Blackberry ceased making and selling smartphones inscribed with its brand after entering into a deal with TCL Communication, a Chinese smartphone maker, which will begin selling Blackberry branded smartphones in April.

The separation may be easy to execute given the fact that TCL will be depending on the BlackBerry brand to market its KeyOne device which was recently launched at a major technology conference.

Chen, who took over the company’s top position in 2013, says the company will need around four to five quarters to stem the steady decline in its revenue. He says revenue from the sale of software is projected to go down by around 15% in the financial year that started in March.

Mogharabi says it is difficult to figure out the company’s real position in their turnaround strategy as well as downside or upside in the future. He proposes that the company will try and standardize its guidance and provide more detailed information.

Ticker BBRY
Market Cap $4,155.32M
EPS (ttm) -$2.67
Shares Outstanding 536.17
Shares Float 530.23
Insider Ownership 11.20%
Float Short 10.13%
Short Ratio 15.64
Performance (Quarter) 11.51%
Performance (Year) 3.61%
Performance (YTD) 12.48%
Beta 1.11
Average Volume 3,433.54
Price $7.75
Volume 53,794,831
Target Price $7.92

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy.

About the author: Monica Gray has an undergraduate degree in Accounting and an MBA – earned with Honors. She has six years of experience in the financial markets and has been a securities analyst for the past two years.

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Monica has an undergraduate degree in Accounting and an MBA she earned - with Honors. She has six years of experience in the financial markets and has been an analyst for the past two years.

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