BlackBerry Ltd PT Lowered To $10 With A Negative Outlook

BlackBerry’s core enterprise software revenues are being impacted by the perpetual shift to subscription revenue, stated Cowen and Company analysts in a research report on Tuesday. The analysts suggested a negative outlook on the Canadian company and lowered their price target on the stock to $10 from $11.

Negative outlook on BlackBerry

Within their research report, the analysts listed the slump in new smartphone demand and technology licensing as other factors contributing to their negative outlook on the company.

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For the second quarter of fiscal year 2016, the Waterloo, Ontario-based company guided for a 15% drop quarter over quarter in service revenues and a 20% year over year increase in software revenues. Cowen analysts noted that the company has intentionally not given any updates on technology licensing revenues. The firm is also seeing low sequential growth in hardware, which could further lower the quarter over quarter revenue by 10% in the second quarter of fiscal 2016.

Technology licensing revenue vital

If BlackBerry’s technology licensing keeps on growing, then the results of the second quarter fiscal 2016 could be very similar to those of the first quarter, believe the analysts. For the first quarter, the Canadian smartphone maker posted revenue of $658 million and an adjusted loss of 5 cents per share. On a quarterly basis, software and technology licensing revenues surged 150% year over year to $137 million, service revenues dropped 51% year over year to $252 million, and revenues dropped 31% to $263 million compared to the same quarter last year. “Other” segment revenue took a nosedive of 57% to $6 million in the last quarter.

According to Cowen and Company, BlackBerry removed its $100 million Messenger revenue target and came up with a new $500 million software and technology licensing target that does not include BBM revenues. Analysts note that the lumpy nature of technology licensing undermines the confidence of investors “about even achieving the new target save for a clear, sustained acceleration in core enterprise software revenue growth.”

In a note on Tuesday, analysts at Vetr upgraded the stock from Buy to Strong Buy with a price target of $11.33. On Tuesday, BlackBerry shares closed down 1.33% at $8.18, and year to date, the stock is down by almost 26%. BlackBerry has a consensus price target of $8.49.