BlackBerry executives shared more about their turnaround roadmap at the Consumer Electronics Show (CES) this week, and apparently Wall Street isn’t very impressed. Shares of BlackBerry slipped as much as 2% during regular trading hours at the NASDAQ on Friday after trading mostly sideways on Wednesday and Thursday.
Meanwhile analysts from RBC Capital and UBS weighed in on BlackBerry’s CES announcements.
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BlackBerry targets $500 million in software revenue
In a report dated Jan. 8, 2015 RBC Capital Markets analyst Mark Sue and his team note that BlackBerry has a tough road ahead of itself as it seeks to fill the gaping hole left by services revenue. The struggling Canadian smartphone maker also must look beyond devices to fill that hole, which adds to its difficulties.
Services revenue is expected to be almost cut in half next year, and BlackBerry CEO John Chen emphasized that they have four main initiatives planned to replace that revenue. The four areas they’re focusing on are devices (going beyond smartphones), BlackBerry Enterprise Server, BlackBerry Messenger, and their QNX operating system.
The RBC team notes that these four areas are connected to each other rather than being “disjointed.” They note that BlackBerry’s Internet of Things platform is related to its smartphones and that it is seeking to monetize all of its assets. By next year, the company wants to have $500 million in software revenue, an increase from the $274 million in fiscal 2015.
The analysts say BES is probably going to drive most of the 2016 fiscal year software revenue growth. BlackBerry has been successfully pushing its EZ Pass upgrades to BES10, and the company relies heavily on enterprise customers. They add that the main drivers in BES include paid technical support and sales of BES 12 software.
BlackBerry unveils IoT offering
BlackBerry also showed off its Internet of Things platform at CES. The company expects to release it commercially in April. It uses BlackBerry’s already-existing assets like security, scale and global reach. The platform currently focuses on automobiles and asset tracking, but the company intends to push it out to the medical and smart energy industries eventually.
The RBC team points out that monetizing this platform will probably take longer than it will to monetize the company’s other plans. However, they say if the company has some “design wins” in its 2016 fiscal year, investors will be able to gauge its progress in this area.
QNX and BBM expansion
BlackBerry also intends to expand QNX from infotainment systems in vehicles to other automotive systems. QNX currently holds more than half of the automotive infotainment market, and monetization is mostly focused on royalties. The big opportunity here is increasing the content that’s available, and BlackBerry showcased plans to integrate QNX into other parts of vehicles as well.
BlackBerry Messenger is another bright area in the company’s turnaround progress. Management wants to see $100 million in BBM revenue in fiscal 2016. Currently the app has 90 million monthly active users, and currently BlackBerry doesn’t really monetize it right now.
In order to start monetizing BBM, the company plans to charge for additional services like BBM Protected, which offers secure messaging, and BBM Meetings for mobile collaborations. The company will also offer paid subscriptions to consumers covering premium features like ad-free usage.
The RBC team maintained their Sector Perform rating and $11 per share price target on BlackBerry.
BlackBerry should sell its devices division
In a separate report also dated Jan. 8, 2015, UBS analyst Amitabh Passi and associate Tejas Venkatesh also said BlackBerry’s devices segment is the least interesting part of the company’s story. They went a step further though and suggested that the company could eventually sell its devices division and that it probably should.
Indeed, it certainly appears as if the key to a successful turnaround at BlackBerry is a successful transition to software away from a focus on devices. The UBS team also referenced the company’s target of $500 million in software revenues, but to them, the strategy of achieving that target was less clear than it was for the RBC team.
The UBS team also provided a peek at BlackBerry’s fourth fiscal quarter earnings and say it was probably an “awkward” quarter because of the timing of the Classic launch, which was on Dec. 17. They maintained their Neutral rating and $10 per share price target on BlackBerry.