Yet the biggest problem for the software company is not the losses, but the declining revenues (2). In fact, even on GAAP basis, BlackBerry managed to reduce the losses compared to a year ago, but revenues have been on an incessant decline. The reported revenue for the current quarter represents a massive 47% decline on a YoY basis. In the previous quarter, the revenue had declined by almost 40% YoY. And the decline is not over yet. The SAF revenue and Mobility services revenue will continue to put pressure on revenue growth. The SAF revenue, which currently contributes 23% of BlackBerry’s revenue will eventually hit $0. Declining SAF revenues will also hit the profitability figure, as it is the most profitable segment of the three, with an operating margin of 70%. (Also Read: Has BlackBerry Ltd Put Its Security Reputation At Stake)
Software Disappoints
The software segment is Blackberry’s only hope. But even that segment disappointed in the current quarter. The software segment revenue grew by just 1% YoY, though BlackBerry still maintains that it will deliver 30% YoY growth in this segment in FY17. The disappointing software numbers has Tim Long of BMO Capital worried:
Software revenue of $164 million was up 1% y/y, but missed our/consensus estimates of $176 million/$175 million. We had modeled a minimal $5 million of IPR contribution in the quarter, and results suggest a slightly higher contribution of $7 million. Management continues to expect 30% growth for the year, and our model assumes $8 million of IPR contribution in the February quarter to get to this target. Both Hardware and SAF sales missed our expectations as well, though these businesses are less critical to Blackberry’s current story.
The Growth Drivers
In the Q3 conference call, CEO John Chen identified four key growth drivers for BlackBerry Ltd (NASDAQ:BBRY) going forward. They are a) enterprise mobility; b) embedded software; c) IoT and d) software licensing. BlackBerry is making progress on several of them. On the licensing front, apart from BB Merah Putih, BlackBerry has recently signed an agreement with TCL. The company has already worked with TCL on DTEK50 and DTEK 60 devices. It is also in a late stage discussion for a similar licensing agreement in India, one of the world’s fastest growing handset market. On the embedded software front, Blackberry has signed an agreement with Ford for providing secure infotainment systems. BlackBerry hopes to expand its relationship with Ford and use the deal to onboard other companies. BlackBerry is also eyeing the multi-billion autonomous car market. But these efforts are still not significant enough to slow the revenue decline. (Also Read: This Could Hurt BlackBerry Stock Big Time)
Conclusion
The revised guidance suggests that BlackBerry is making good progress in stemming its losses. The company’s profit outlook is improving. The licensing segment with almost 90% operating margin will further improve the profitability, though it is still an insignificant contributor to the top line. But the declining revenues is still a cause of worry. Investors should wait until the company shows a significant improvement in revenue outlook before investing in BlackBerry stock.
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The article Should You Buy BlackBerry Ltd (BBRY) Stock After The Latest Earnings Beat? originally appeared on amigobulls.com. Watch our analysis video on BBRY
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Additional Links:
(2) http://money.cnn.com/2016/12/20/investing/blackberry-earnings-stock/index.html
(3) http://amigobulls.com/stocks-to-buy/top-tech-stocks/?ref=il&ref=im
