Stocks

BlackBerry Earnings: Stock Down Ahead Of Q4 2018 Results

BlackBerry Ltd (NYSE:BB) is scheduled to release its Q4 2018 earnings results on Wednesday before opening bell. The consensus looks for BlackBerry earnings to come in at breakeven on $216.8 million in revenue. In the same quarter a year ago, the Canadian tech firm reported earnings of 4 cents per share on $297 million in revenue.

blackberry earnings stock bb q4 2018
Image source: BlackBerry (screen shot from video via YouTube)

BlackBerry earnings estimates slide

Just 30 days ago, consensus pegged BlackBerry earnings at 1 cent per share, so analysts have been slashing their estimates recently. Macquarie analyst Gus Papageorgiou is expecting the company to miss earnings estimates, as he said in a note this week that he expects losses of 1 cent per share on $211 million in sales. That would represent a 29% plunge in total revenue due to the ongoing shift from hardware and service access fees toward a software-centric model.

However, he also expects software revenue to jump 15% year over year as the company makes good on its plans to boost software revenues. He expects handset sales and service access fees to be “largely immaterial” as the company nears completion of its transition. He expects software and services revenue to make up about 90% of BlackBerry’s total sales and looks for 57% of software and services revenue to come from enterprise customers. According to him, the result should be a dramatic year-over-year increase of 1,300 basis points in the company’s total gross margin, which should enable the company to hit a new all-time high.

Nearing the bottom in BlackBerry revenues

Overall, Papageorgiou believes Q4 2018 will be close to the bottom of the decline in BlackBerry’s revenues. He explained that investors haven’t really been able to see growth in enterprise software because deferred revenues have been experiencing some major headwinds, which he expects to end in fiscal 2019.

The Macquarie analyst seems pleased that BlackBerry extended CEO John Chen’s contract to 2023. He feels Chen’s expertise in conducting major turnarounds continues to be of major importance.

The company has experienced its share of positive news recently, as investors reacted positively to the announcement about the deal with Microsoft. BlackBerry’s security offerings will be integrated into Microsoft’s mobile productivity apps.

However, even though the company doesn’t make its own handsets, BlackBerry stock slid on Tuesday after it was revealed that U.K. Prime Minister Theresa May, one of the final holdouts for BlackBerry phones among major world leaders, has finally ditched her BlackBerry in favor of an iPhone. The Canadian firm licenses its brand to TCL, but if no one is buying BlackBerry-branded handsets, that licensing revenue is sure to disappear eventually. Still, the BlackBerry brand remains strong in some emerging markets, such as India.

Looking to BlackBerry earnings for Q1 2019

Papageorgiou also provided estimates for BlackBerry’s Q1 2019 earnings. He’s projecting an 18% year-over-year decline in total sales and an 18% increase in software and services revenue. He doesn’t expect the company to see any revenue from handsets or service access fees in Q1 and believes it will finally mark the trough in the company’s revenue. He does expect QNX contributions to be “modestly higher” and predicts that the deal with Ford will start to bring in revenues in the second half of this year.

Following a strong rally on Monday, BlackBerry stock began slipping on Tuesday, falling by as much as 1% to as low as $12.92 per share. Papageorgiou maintained his Outperform rating and US$15.50/ C$19.50 price targets going into the BlackBerry earnings release on Wednesday morning.

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