What To Expect From BlackBerry’s Q4 2016 Earnings

  • BlackBerry is scheduled to announce its Q4 2016 and full year FY 2016 earnings result on 1st of April.
  • Analysts' expect BlackBerry to report an EPS of -$0.09 on a revenue of $563.8 million.
  • Priv's sales number and service and software revenue numbers will be watched for.

Canadian software and handset maker BlackBerry is scheduled to announce its Q4 2016 and full year FY 2016 earnings result on 1st of April. The Wall Street expects BlackBerry to report an EPS of -$0.09 against the last year same quarter EPS of $0.04, on a revenue of $563.8 million. The expected revenue represents a decline of 14.6% YoY.

BlackBerry reported an EPS of -$0.03 in the previous quarter, delivering an impressive earnings surprise of 78.6%. However, BlackBerry’s earnings surprise history has been volatile in the last four quarters with earnings surprise ranging from positive 180% to negative 66.7%.


Source: Yahoo Finance

BlackBerry stock is down 15% YTD compared to 3% decline in Nasdaq. The stock had jumped more than 20% after the company delivered the earnings surprise last quarter. But has, since then, erased most of the gains. BlackBerry stock has a buy rating from the Wall Street.

BlackBerry Priv

All eyes will be on the sales number of Priv, BlackBerry’s flagship android phone. BlackBerry had launched it in November last year. The high-end handset, with a selling price of $699, has been warmly received by BlackBerry users and has a potential to revive BlackBerry’s handset division.

With its premium pricing, Priv can greatly improve BlackBerry’s ASP.  Last quarter, BlackBerry reported an ASP of $315 as compared to $240 in Q2 2016. This was in spite of Priv being released towards the fag end of Q3. No wonder John Chen is hoping for a break even in the handset division in Q4. To quote Mr. Chen from BlackBerry’s Q3 2016 earnings call:

“Depending on how PRIV does in Q4, there's a chance -- I mean, I'm being warned by a lot of people -- there is a chance, we could achieve or get closer to breakeven operating profitability for our overall device business in the quarter.”

BlackBerry has not released sales figures for Priv. But when asked in January Mr. Chen had remarked “so far so good”.

The Success of Priv could also sound a death knell for the BB10 OS. Earlier Facebook has announced that it will stop support for its app on BlackBerry OS and then WhatsApp followed suit. Lack of popular apps will significantly reduce its attractiveness for customers. While on the other hand shift to android will open up access to millions of apps for BlackBerry Users.

Software And Services

Since the time he took over as the CEO of BlackBerry, Mr. Chen has devoted a lot of energy and money on software and services division. And this is showing results. BlackBerry reported software and service revenue of $162 M in Q3 up 183% YoY and 119% sequentially over Q2. For the first time, incremental growth in this segment offset the decline in SAF (Service Access Fee) revenue. This is in spite of SAF revenue declining by 18% YoY, higher than expected decline of 15%. Organic growth in software revenue was 43%.

Service revenue made up for 29% of overall revenue and is expected to continue its growth. BlackBerry expects service and software revenue to be around $500 million for the full year FY 2016.

Positive Cash Flow

In spite of an incessant decline in revenues, BlackBerry has managed to churn out free cash flow for consecutive seven quarters. Last quarter BlackBerry generated positive free cashflow of $15 million taking its cash and cash equivalent position to $2.7 billion. The large cash hoard provides a strong cushion to BlackBerry's stock price (BlackBerry's market cap is around $4 billion).

What To Expect In Q4 Earnings

BlackBerry expects its Q4 revenues to be in line with its Q3 revenue of $557 million almost matching Wall Street’s expectations. Average selling price for its devices is likely to see a significant improvement due to Priv. On the margin front, gross margin is likely to fall back to 40% level from 44% in the previous quarter. BlackBerry expects SAF to continue to decline at 18% and expects incremental growth in service and software revenues to offset that decline. BlackBerry will continue to generate positive free cash flow and positive EBITDA in Q4.

BlackBerry stock has been trading in the wide range of $7 to $9.5. BlackBerry stock is likely to remain volatile in coming days. Downside risks are limited mainly due to its large cash position. But if Mr. Chen is able to turnaround the business (a big if), the upside will be huge. BlackBerry stock continues to remain a speculative play.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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