BlackBerry Ltd (NASDAQ:BBRY) stock will need more than an EPS beat for a post earnings rally.
Ontario, Canada based software company BlackBerry Ltd (NASDAQ:BBRY) is all set to release its second-quarter earnings on Thursday, before the bell. It is almost four years since John Chen took over as BlackBerry's CEO and the company is still trying to orchestrate its turnaround. BlackBerry stock has struggled in this period. BlackBerry stock has shown promise on some occasions only to fall back. BlackBerry stock had rallied over 60% this year till mid June on hopes of turnaround (also helped by a huge legal award from Qualcomm) only to give up half of its gains after disappointing first-quarter earnings results.
The company has taken several positive steps, including dumping its iconic hardware segment which was a drag on its bottom line. After shelving its hardware division, the company has shifted its focus on providing secure software solutions. A lot of investors are pinning their hope on BlackBerry’s QNX unit. The QNX unit provides secured infotainment solutions to over 60 million of Ford cars. BlackBerry has been trying to partner with several other automobile manufacturers.
QNX Delphi deal.
Just last week, BlackBerry announced a partnership agreement with Delphi Automotive to provide the operating system for autonomous car technology. As per the agreement, BlackBerry’s QNX unit will collaborate with Delphi on a system that improves software performance and enhances safety in autonomous cars, the two companies said on Wednesday. Delphi is developing an affordable self-driving system with Intel Corp and its Mobileye unit that it will begin selling to carmakers in two years. BlackBerry stock has gained over 7% on the news on the partnership, only to give up all the gains in the next couple of trading sessions.
QNX has been the rallying point for BlackBerry bulls as they point out its vast potential in a world of autonomous cars. There is also a lot of positive commentaries around Radar and its fleet management services. This segment too has shown some positive movements. However, positive developments in both these segments have failed to show up in BlackBerry's top line which continues to deteriorate. BlackBerry management, which has repeatedly spoken about these business segments, has failed to provide clarity on their financial contributions to the company. Both these business segments will again figure during the second quarter earnings call and investors will be watching out for any developments on these fronts as well as for any financial information, the management can provide about these segments.
BlackBerry revenue is in free fall.
For BlackBerry to have a successful turnaround story, both QNX and Radar must deliver. BlackBerry's revenues have been in a free fall over the last three years. The top line has further taken a hit after the company dumped its hardware division. This has been the main sore point with investors and analysts. BlackBerry needs to find a significant source of revenue. QNX and Radar are supposed to be that source of revenue. We will have to see if they can live up to their potential.
What analysts are expecting from BlackBerry's earnings.
The Wall Street expect BlackBerry to report breakeven adjusted EPS on revenue of $221.18 million for the second quarter. The Wall Street estimate implies revenue decline of 37.2% on a year-on-year basis while EPS will remain flat. On the adjusted EPS front, BlackBerry has a sound track record of beating earnings expectations. John Chen led company has beaten the Wall Street consensus on the earnings front seven out of the last eight quarters. So you can expect another beat this quarter. If the company manages to beat the analysts' expectation of breakeven EPS, it will mark four consecutive quarters of non-GAAP profitability.
However, this may not be enough to lift the stock post-earnings. The company needs to deliver some good news on the revenue front. BlackBerry missed the consensus estimates in six out of the last eight quarters. Software and services segment, which is supposed to be BlackBerry's key growth driver will also be under the radar. BlackBerry, expects its Software & Services business revenue growth to be in the range of 10% to 15% for the full year.
A possibility of a short squeeze?
BlackBerry stock is highly shorted stock. Over 41.7 million BlackBerry shares have been shorted making up 8% of the float, while the days to cover is around 17 days. This could technically lead to a short squeeze if the company reports stellar earnings, as shorts will be forced to cover their position. However, investors must not bank on this. Investors must wait for the earnings before taking any position in the stock.
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