BlackBerry Ltd’s 40% GM Guide ‘Surprising’: Wells Fargo

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BlackBerry shares spiked marginally on Wednesday in after-hours trades following comments about the stock made by a Wells Fargo analyst. Analyst Maynard Um assigned a Market Perform rating to the stock with a valuation range of $8 to $9.

Potential sale of BlackBerry ‘less likely’

According to Um, the potential sale of the company is “less likely” in the near future, and he suggested that the Canadian firm could resort to strategic alternatives. Um analyzed the company’s Q1 2016 10-Q filing and came up with a few observations.

According to the analyst, the gross margin guide of around 40% is a “surprise.” Further, software revenue is estimated to surge by “more than 20%,” excluding revenue from technology licensing against the last financial year. Um expects “operating expenses to increase over the next few quarters,” adding, “Our/Street estimates at risk. Implied hardware gross margin declined to low/mid-single digits.”

Further, Um expressed caution on the BBM revenue guidance of $100 million for FY16. According to Um, service revenue will drop 15% each quarter for FY16, and a lack of hardware releases could affect hardware sales.

However, not everything is negative for BlackBerry as the company won 2,600 new enterprise customers in the last quarter. This is an increase of 400 compared to the fourth quarter of 2015. The company’s major customer inflow has been from the healthcare and financial sectors.

BES gaining more clients

In the healthcare sector, the Waterloo, Ontario-based company signed a deal with Grand River Hospitals, CarePartners, and Trillium Health Partners, among others. In the financial segment, a few big names such as Blackstone (BX), ATB Financial, UniCredit Bank in Russia (RSX), and Financial Technologies in India (EPI) are among BlackBerry’s new clients.

One of the most significant client wins for Blackberry is Royal Bank of Scotland, as it beat MobileIron, its arch rival in the device management space. In its conference call, the company mentioned that RBS has now established BES12 as the corporate standard for mobile device management.

BES is a server that offers secure synchronization of emails, contacts and calendar information within a company’s network. The Canadian smartphone maker said BES12 will be the prominent growth driver for the company in the short term. On the hardware front, the Canadian company is reportedly planning to launch an Android phone, but nothing has been made official so far.

On Wednesday, BlackBerry shares closed down 1.96% at $8.02, and year to date, the stock is down by over 27%.

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