Is BlackBerry The Mobile Stock To Own In 2016?

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The battle in the mobile phone industry is intense. Apple is the market leader in high-end smartphones. On the other end, Samsung owns a larger share of the market due to its broad product portfolio. Huawei is a brand not to underestimate with over 100 million smartphones sold in 2015. Other names are struggling to keep up, such as LG, Motorola, Sony and Nokia. One would almost forget about the once much desired BlackBerry phones which saw sales slump in the recent years. But the latest results point to a potential recovery. Is it now time to pick up Blackberry’s much battered shares?

BlackBerry recently launched its first Android-powered smartphone, the Priv. This model falls in the high-end smartphone category (price: $699) and should in theory compete with the likes of Apple’s iPhone and the Samsung S6 (Edge). Although BlackBerry’s CEO John Chen refuses to give hard numbers, he stated that the first 30 days after launching the new phone were “quite positive”. However, the company published that it sold a combined 700,000 handsets in the recent quarter ending November 28. That’s down from 800,000 handsets sold in the previous quarter and below the 900,000 number some analysts expected. Nevertheless, BlackBerry is scaling up with the Priv. As a result, the company was able to beat the forecasts for hardware revenues which came in at $214.0 million versus $205.6 million expected. The average price of smartphones sold increased to $315 compared to $240 last year.

The real surprise came with the software revenues. During the most recent quarter, the segment for software and technology licensing reported revenues of $154.0 versus consensus of $103.3 million. Due to the strong performance of this segment, BlackBerry reported quarterly revenues of $548.0 where analysts expected $487.9. However, this number is a rough 30% lower than last year. At the bottom line, a quarterly loss of $0.03 per share remains. CEO Chan stated that his first goal is to get the company in a break-even position with the device business. During the earnings call following the results, BlackBerry stated that it needs to sell 5 million handsets in order to return to profitability. That’s a challenge, also since the Priv is relatively expensive. But we have to keep in mind that the Priv is just recently launched and was less than 30 days in the market before the quarterly results hit the wires. Availability was restricted to four countries, rollout to other countries should follow swiftly. The next quarterly results due in February should shed more light on a potential success of the Priv.

The question remains whether a potential sale success for the Priv will matter substantially for BlackBerry to return to black figures. The software division could be more important for the company’s future. Currently, revenue breakdown is 39% hardware, 32% services and 28% software and technology licensing. The services segment came in lower than expected and may face a challenging environment. BlackBerry’s management expects a decline of 18% in service revenues for the next quarter. It expects that software revenues will offset this decline. In the recent quarter, the company added 2,700 customers. Due to a strong performance in IP licensing, the company was able to increase gross margin to 44.9% (41.5% expected).

As a result of the revenues beat, several analysts upped their forecasts. Despite this, it is still expected that revenues are on a decline, from $2.2 billion in fiscal year 2016 to $2.0 billion in 2017. Also many analysts expect the company to struggle to become profitable. Consensus is a loss of $0.32 per share for 2016 and more or less the same in 2017. That makes the stock highly speculative. The positive revenue surprise this quarter is not enough to talk about a turnaround in BlackBerry’s business. For now, treat this share with caution…

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