BlackBerry Ltd (BBRY) Shares Plunge After Investors Question Turnaround

BlackBerry Shares DownWeak earnings from BlackBerry Limited (NASDAQ/BBRY) marked its third straight unprofitable quarter—another signal the company’s turnaround could be in trouble.

On Tuesday, June 23, 2015, shares of the smartphone manufacturer plunged after the company reported disappointing financial results. Quarterly revenues for the quarter ended May 30th totalled $658 million, slightly lower than the same period a year earlier. Excluding charges related to restructuring and a one-time accounting gain, BlackBerry reported a first-quarter loss of $28.0 million, or five cents a share. (Source: BlackBerry Press Release, June 23, 2015.)

As part of the firm’s turnaround, BlackBerry has been trying to transform itself from a hardware-focused company to a software and services provider. Tuesday’s report showed just how much the Waterloo, Canada-based firm has changed in recent months.

During the conference call, Chief Executive John Chen discussed his latest licensing deal with Cisco Systems Inc., but said he could not disclose terms. The agreement is part of the company’s push to monetize its valuable patent portfolio, which some analysts estimate could be worth up to $5.0 billion alone. (Source: BlackBerry Q1 2015 Conference Call, June 23, 2015.)

Chen also noted the company added 400 new customers to its mobile enterprise software business, which now has about 2,600 clients. He now plans to divert between $100 and $200 million in annual operating spending from BlackBerry’s smartphone business over to software operations. (Source: BlackBerry Q1 2015 Conference Call, June 23, 2015.)

“I’m obviously quite pleased with the quarter,” Chen said on the company’s conference call. “We had some very good achievements.” (Source: BlackBerry Q1 2015 Conference Call, June 23, 2015.)

However, progress on growing software revenues, a key part of the company’s turnaround, has been slow. Shareholders were initially impressed when management touted a 150% increase in software and licensing sales, but the result was clouded by uncertainty over the source of the revenues. (Source: BlackBerry Press Release, June 23, 2015.)

Analysts grilled executives on the performance of its software business during the conference call. Management, however, refused to neither disclose the terms of the agreements nor discuss how much they could boost revenue in the future.

Bottom line; Chen is running out of time to turn BlackBerry around. Analysts want to see big gains in software and service revenues. But without improving top-line growth, the company’s future outside of smartphones is doubtful.

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