Some critics might take BlackBerry’s (TSX:BB) Q3 revenue shortfall as evidence that its turnaround isn’t working, but digging deeper into the numbers reveals a company whose future is looking brighter, says Cormark analyst Richard Tse.
On Friday, December 19th, BlackBerry reported its 2015 third quarter results. The company lost (U.S.) $148-million on revenue of $793-million, a number that fell short of the consensus expectation of of $931.5 million.
“We achieved a key milestone in our eight-quarter plan with positive cash flow,” said CEO John Chen. “We also attained another important milestone in the release of our new enterprise software products and devices. Our focus now turns to expanding our distribution and driving revenue growth.”
Tse says the quarter was a “mixed bag” and notes that he wasn’t expecting world-beating numbers from the company anyway. He says the revenue shortfall doesn’t concern him because the low Average Sell Price (ASP) of $180 on handsets came from the company clearing out old inventory in order to focus on the newer Passport and Classic. The analyst thinks more meaningful datapoints such as an upgrade cycle that will drive the ASP of hardware, BES12 gaining traction and, most importantly, the company’s software/subscription model, which he expects will be the real value creator for the company moving forward, not hardware.
“No doubt, the scale of execution required to make this turnaround successful is big (hence the risk rating),” says Tse, “…but we’re assuming there are enough initiatives in the pipeline to make BES12 and the related enterprise applications a success or at least make the brand meaningful in enterprise.”
In a research update to clients following the quarter, Tse reiterated his “Buy” rating and $17.00 one-year target on BlackBerry, with a “Speculative” risk rating.
“…we believe this name will continue to move higher in the new year,” said Tse.