BlackBerry Earnings Preview Q3 2016

  • BlackBerry is set to report its earnings on this coming Friday, 18th December before market opens.
  • BlackBerry’s last quarter earnings was a huge miss.
  • Focus will be on Priv numbers.

BlackBerry earnings are scheduled to be reported on 18th December, before market opens. BlackBerry (NASDAQ:BBRY) had an eventful quarter with the launch of Priv, its first android based smartphone. And a lot of analysts will be looking out for its sales and inventory numbers. Like Passport before it, Priv is supposed to be BlackBerry’s last ditch effort to save its hardware business. Priv has been received well by many BlackBerry lovers, and like Passport, it has sold out on various retail platforms including Walmart (NYSE:WMT). While Priv number will hog the limelight, analysts' and investors will also be watching out for its service and software segment revenue.

Analysts Estimates

Analysts' estimate an EPS of -$0.15 on a revenue of $487.92 million. BlackBerry had a huge earnings miss in the last quarter and has missed revenue targets in last four quarters. However, a look at BlackBerry’s stock price since its last earnings indicates that the market is expecting a strong performance from BlackBerry, aided by strong Priv sales. The stock is up around 25%  since September end.
BBRY stock chart
Source: BlackBerry Stock Price Data by

While John Chen has been able to produce positive earnings for a couple of quarters, revenues have seen a consistent decline. BlackBerry’s revenues have declined by 48% in the last twelve months, largely due to declining hardware sales and service access fees. And while revenue from software was supposed to offset the revenue loss from hardware business in the long run, it was disappointing in the last quarter. BlackBerry had recognized revenues on 800,000 thousand units with an ASP of $240.
BBRY revenue chart
Source: BlackBerry Revenue Data by

BlackBerry Priv

BlackBerry made a significant move in November by  launching its first android based smartphone, BlackBerry Priv. The phone has generated a lot of attention and has been received well. BlackBerry stock jumped almost 10% on December 10th after several retailers, including Walmart and Best Buy (NYSE:BBY) reported that the smartphone was sold out.The stock has corrected since then with many analysts advising caution against reading too much into the stock out. They pointed out that the stock out was largely because those retailers had taken in a much smaller inventory of the phone in the first place.

Priv is another example of BlackBerry management's refusal to break away from the past. Time and again we have seen companies trying to revive their iconic brands inspite of a clear writing on the wall. While Mr. Chen has announced his intention to convert BlackBerry into software and services firm, specializing in enterprise solutions and data security, arguably its core competency, the company keeps making occasional forays into the handset market.

These occasional forays have not enjoyed much success, and have cost the company a lot in terms of managerial resources. They tend to take focus away from what the company wants to become. BlackBerry needs to make a call about the future of its handset business based on success or failure of Priv.

Free Cashflow Remains Positive

In the face of continuous revenue declines and negative earnings, BlackBerry has managed to produce eight consecutive quarters of positive free cash flow, which has bought time for Mr.Chen and his team to effect the turnaround. The company generated $100 million of cash in the last quarter and is sitting on $3.35 billion of cash with a net cash position, after adjusting for the $1.25 billion face value of outstanding debt, of $2.1 billion. This large hoard of cash has provided significant cushion to BlackBerry stock price.

What To Expect From BlackBerry Earnings In Q3

BlackBerry will continue its downward slide on the revenue front in the current quarter, with service access fees posting a significant decline. Its ASP is likely to go up on the back of the higher margin Priv. On the cash front, the company will continue to generate free cashflow and add to its cash pile. While the road to profitability looks bumpy and long, Chen is confident that BlackBerry will turn profitable in 2016. BlackBerry stock continues to remain a speculative play.

Kumar Abhishek Kumar Abhishek   on Amigobulls :

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