When the name of Blackberry (BBRY, Financial) was taken a few years back, it used to be considered as a symbol of pride and esteem but with new mobile players moving into the smartphone market with far better offerings, the Blackberry phones took the back seat when it came to their sales vis-à -vis their counterparts with similar features. This in turn did grossly affect the earnings of the company which started generating negative cash flows and has thus reported losses in the past several quarters. Recently, on December 19, the Canadian mobile player reported its third quarter earnings which were not very impressive, but at least were better in terms of cash flow and profits when compared to the similar quarter of the fiscal year. Let’s dive in and find out what happened during the quarter and what the management have to say regarding their strategies to turnaround the company.
Looking back into the quarter
Blackberry surprised many analysts of the Street by reporting adjusted earnings for the September-to-November period which came in at $6 million or $0.01 per share. This did beat the $0.05 per share loss projected by analysts surveyed by Fact Set.
While the company did show a streak of positive cash flow in the quarter, CEO, John Chen, stated that there’s “lot of work” left to do for the company in the coming quarters. Revenue for the third quarter also came in at $793 million which fell well below the consensus forecast of $1 billion.
Quarterly net loss was at $148 million or $0.28 a share, which is better than the $4.4 billion, or $8.37 a share reported for the same period last year.
The earnings results followed the week’s launch of the company’s latest smartphone. Dubbed Blackberry Classic, the device is aimed at Blackberry loyalists who applaud the company’s digital security and physical keyboards but also seek more modern touches that compete with Apple (AAPL, Financial) and Samsung (SSNLF, Financial) smartphones.
As the smartphone sector is taking a huge loss in terms of revenue for the Canadian player for the past few quarters, it is expected that the Passport and Classic launches would aid in generating profits for the company in the long run.
The management’s turnaround program catching pace
While speaking during the earnings call, Chen suggested that the fall in the revenue is frustrating and it’s possible that the Canadian mobile player is at the lowest point in terms of revenue, but the company is near the bottoming out of this revenue. He sounded upbeat as he delivered his pledge to generate positive cash flow from operations by the end of the fiscal year. In fact, this quarter Blackberry was successful in producing $43 million as gain.
Notably, though the company finally reported net loss in this quarter even after posting a profit on an adjusted basis, it still is cash rich and has $3.1 billion in cash and investments. So, things don’t look very bad for the mobile player. Instead its results reveal a company in mid-turnaround, with a lot of moving parts, as their CEO tends to move the focus away from handsets to software and services.
The CEO is optimistic and he stated that the company would need “a couple of quarters” to ramp-up top-line results, pointing to a growing pipeline of sales of its newly launched smartphone models. Also, in the software business Blackberry is looking forward to revival, as Boeing (BA, Financial) and Bombardier Inc. (BDRBF, Financial) are signing up to use its new BlackBerry Enterprise Services software or BES 12.
Analysts were elated to find the positive cash flow and a penny in profit in adjusted earnings, but the low demand and top line growth slump is turning to be their biggest concern. To address such thoughts, the CEO clearly indicated that Blackberry is still on track to double its revenue from software to $500 million- by next year, driven partly by sales of BES 12 which was launched in November this year.
Last thoughts
Things seem to be looking great for the company after considering all the efforts taken by the management and comparing to where Blackberry was a year ago. According to Colin Gillis, an analyst with BGC Partners in New York, the stock revived on the same day of trading after having taken a downturn because of the positive signals present in the quarterly report that attracted several buyers. He further added, “It’s still very much a turnaround. If I were an investor with any type of time horizon, I would not be selling.”
