Is BlackBerry Ltd the New Wonderkid on the Block?

BlackBerry stockBBRY Stock Gains More Than 11% on Stellar Q4 Results

BlackBerry Ltd (NASDAQ:BBRY) has done what was not expected by most on Wall Street. The company has posted quarterly results that beat expectations by wide margins and is clearly emerging as a more focused and a stronger player after its smartphone heydays. BBRY stock gained 11.5% in Friday’s session to close at $7.75 and is likely to continue the positive momentum.

On Friday, BlackBerry reported financial results for the fourth quarter and fiscal year ended February 28, 2017. The company posted adjusted earnings of $0.04 per share as compared to a loss of $0.03 a year ago. On an adjusted basis, the total revenue for the quarter was $297.0 million. Adjusted revenue from the software and services unit was $193.0 million in the fourth quarter. Gross margin jumped to 60.1% in the quarter from 43.3% last year. Operating expenses nearly halved to $229.0 million. (Source: “Blackberry Reports Q4 Fiscal 2017 Results Above Analyst Consensus Revenue and EPS Estimates,” BlackBerry Ltd, March 31, 2017.)

BlackBerry also reported an increase of cash balance by $89.0 million, to $1.7 billion at the end of the fourth quarter. The company also entered into a long-term software licensing agreement with Optiemus Infracom Ltd (BOM:530135) to design, manufacture, sell, and support BlackBerry-branded mobile devices in India, Sri Lanka, Nepal, and Bangladesh. The company’s push into new markets is good news for Blackberry stock.

Last September, BlackBerry Ltd had announced a licensing agreement with Indonesian telecom joint venture PT BB Merah Putih, for production, distribution and promotion of BlackBerry-branded devices. Executive Chairman and CEO of BlackBerry John Chen had also announced a new strategic direction for the company’s “Mobility Solutions,” and Blackberry stock gained on renewed optimism. Chen had indicated that if the company’s handset division did not return to profitability, the smartphone maker will start focusing on being just a software company.

After the closing of the quarter, BB Merah Putih launched the “BlackBerry Aurora,” which is the first device launched under the company’s licensing agreement with the Indonesian company. At the Mobile World Congress this year, “BlackBerry KEYone” was launched by TCL Corporation. KEYone is claimed to be the most secure Android phone in the world featuring a smart QWERTY keyboard and is the first device launched under the company’s licensing agreement with TCL.

Chen said that in the quarter, the company continued to grow its mix of software and services revenue. This led to the expansion of operating margins and generation of free cash flow. Moreover, the balance sheet is getting stronger on the back of reduced capital requirements with the focus on software and licensing. He further added, “Looking ahead to fiscal 2018, we expect to grow at or above the overall market in our software business.” (Source: Ibid.)

The management also expects to be profitable on a non-GAAP basis and generate positive free cash flow for the full year. These developments lay a strong foundation for Blackberry stock in the coming years.

The following stock chart shows how the company has been steadily losing value over the last three years. However, since adopting its software focused strategy, BBRY stock has inched up by almost four percent over the last one year.

BBRY stock chart

Chart courtesy of StockCharts.com

This is indeed a strong comeback for a company that was losing its direction in the age of touchscreen smartphones. Now that the company has found relevancy again and is set to grow in a high potential area, BBRY stock may see better times ahead.

BlackBerry Ltd’s Focus on Connected Cars to Drive BBRY Stock

But the best part about the company right now is the push towards an embedded software platform for autonomous driving and connected cars, which BlackBerry displayed in all its glory, in this year’s Consumer Electronics Show.

The software and services unit includes mobile device management products and the “QNX” industrial operating system. QNX is central to the company’s efforts in the self-driving vehicle industry. BlackBerry had entered into a partnership with Ford Motor Company (NYSE:F) last October to develop autonomous driving software.

The Ford deal was to expand BlackBerry’s use of its QNX secure operating system as the car maker focuses on developing its automated vehicles. BlackBerry CEO John Chen hopes to sign more such deals with carmakers around the world. We had written earlier about how the car deals could be a big boost to BlackBerry Ltd and push the BBRY stock higher. This is the next growth catalyst for the company.

The Bottom Line on BlackBerry Stock

As the smartphone maker comes out of the shadow of its past and reinvents itself, it deserves to be on the watchlist of every tech investor. A few more good quarters could see BBRY stock touching new highs. With the software strategy bearing fruit, interesting times are ahead for BlackBerry stock investors.