BlackBerry is targeting $600 million in revenue from software for fiscal 2016 to offset continuing declines in its service access fees (SAF). Based on this, analysts at Raymond James reiterated their Market Perform rating on the stock with a price target of $11.

BlackBerry Ltd Revenue Estimates Trimmed By R. James

BlackBerry optimistic on EZ Pass conversions

However, the research firm notes a slew of challenges that the company needs to overcome as there is little optimism on EZ Pass conversions and value-added services. EZ Pass allows customers to access BES 10 free of charge when they upgrade from BES 5 and mobile device management vendors.

BlackBerry expects to generate $100 million in software revenue for the quarter, which would be an increase of $33 million or 49% quarter over quarter with contributions from EZ Pass users who upgrade to BlackBerry Enterprise Server 12 (BES12). The Canadian smartphone maker announced that 2,200 customers will pay for BES12, and last year, revenue/bookings of $13 million were influenced by EZ Pass. For the current quarter, the Canadian company is guiding for high EZ Pass conversions.

Revenue estimates trimmed

Raymond James analysts have revised downward BlackBerry’s Q1FY16 revenue estimates from $709 million (consensus of $704 million) to $668 million, whereas EPS estimates remain the same at 6 cents per share. Further, the analysts expect BlackBerry to ship 1.4 million mobile units during the first quarter of fiscal 2016, a decline of 13% year over year. The conservative estimates are based on the premise that the BlackBerry Passport is a niche product. Also the hardware gross margin is expected to be positive on the back of recent layoffs in the segment.

The analysts note that even though the value-added services from BlackBerry are impressive, conversion rate and customer traction are slow. Services that can lure customers are “WorkLife,” which is related to the oneSIM two number program, and BBM Meeting which is under the trial process, said the research firm. According to the research firm, the increasing popularity of these services could potentially expand the average revenue per user and help offset the drop in SAF revenues.

For Q1FY16, SAF revenues for the Canadian firm are expected to come in at $265 million, a drop of 14%QoQ and 49% YoY. For the full year, SAF revenue is expected to come in at $860 million.