Software Growth Key For BlackBerry Ltd: Morgan Stanley


BlackBerry will need to show some upside to software revenue expectations if the Canadian firm wants to maintain its opex levels “without compromising the balance sheet,” believes Morgan Stanley analyst James E. Faucette. The analyst maintained his Equal Weight rating on the firm with a price target of $7.

Licensing revenue to provide cash cushion

For the second quarter, Faucette expects the Canadian firm to post licensing revenue of $30 million, and for FY16, he expects $155 million. Faucette believes there are not “deep pool of large licensees,” and unless BlackBerry proves “recurring revenue from licensing agreements,” such opportunities should be viewed as “one-time events.”

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Licensing revenue could help BlackBerry with an extra avenue to maintain its cash balance despite investments in software and devices. However, the analyst notes that the additional flexibility could come at the cost of “liquidating the long-term standalone value the IP portfolio may have.”

Taking note of the challenging mobile security environment, Faucette raised doubts about software execution. The Canadian firm may witness a rise in BES12 subscribers, but it could be offset by the mounting pricing pressure due to the introduction of rival enterprise software solutions and retail demand for productivity features.

On the hardware part, the analyst expect weak demand for BlackBerry handsets and believes second quarter and FY16 sales will not be enough to keep the segment profitable. On the prospects of an Android-based device, Faucette does not expect such a handset to better “prospects, noting maturation of the handset market, the declining industry profit pool and competition from lower ASP models.”

Wall Street less pessimistic on BlackBerry

BlackBerry is scheduled to post its second quarter 2016 financial numbers before the opening bell on September 25. Estimize’s consensus suggests the Canadian firm will report a net loss of 5 cents per share versus a loss of 2 cents per share for the same period last year. Wall Street expects BlackBerry to post a loss of 9 cents per share. For the quarter, Estimize forecasts the company to earn revenue of $916 million compared to $611.67 million last year. Again, Wall Street is less pessimistic on revenue.

BlackBerry shares have dropped from the high of $12.595 in January 2015 to $7.25 at close on Sept. 22. Year to date, the stock is down by over 34%, while in the last year, shares are down by over 33%.