BlackBerry Ltd Still Struggling, Break-Up Could Help: Analyst

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BlackBerry missed revenue expectations last week, following which Credit Suisse analysts issued a report assigning an Underperform rating to the stock and a price target of $6. Analysts Kulbinder Garcha and Achal Sultania are cautious on BlackBerry’s capacity to increase software revenue and operate more competitively.

Break-up a viable option

Both Garcha and Sultania believe a break-up would be in the best interest of the company “considering inherent challenges in turning around the services stream, and subscale loss-making hardware business.”

The analysts noted that the company posted a loss which was much lower than estimates and expects the Canadian firm to continue to burn cash.

BlackBerry’s services business has witnessed a steep decline on the back of a declining subscriber base, falling ARPU due to a shift towards BB10 and difficulties in the monetization of EZ Pass. Analysts are concerned that the gross margin is declining continuously due to the decrease in revenue from their multiple business segments.

Can software save BlackBerry?

Separately, Well Fargo analysts think that if the company is targeting the software segment for the future, then the fiscal fourth quarter was not bad, as the software revenue came in better than their expectations. It has yet to be seen if management can achieve $500 million in software revenue and $100 million in BlackBerry Messenger revenue.

Wells Fargo analysts gave a Market Perform rating to BlackBerry. For 2016, the analysts lowered their revenue and EPS estimates from $3.13 billion and a loss of 3 cents per share to $2.84 billion and a loss of 7 cents per share. According to the analysts, their lower estimates are primarily due to lower hardware and BBM revenue along with other contributory factors.

On the positive side, the analysts note that the Canadian firm has normalized its cash flow of $76 million, non-GAAP per share of 4 cents, efficient management of operating expenses, positive cash generation, and various other positives.

To push the stock up, the analysts note potential for “strategic alternatives” such as restructuring, divestitures and a multi-platform strategy. But considering a potential sale “less likely in the near-term,” the analysts have assigned a valuation of $9.50 to $10.50.

On Monday, BlackBerry shares closed down 6.98% at $8.80, and year to date, the stock is down by over 20%.

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